September 23, 2015 by Canadian Underwriter
Canada was the second largest energy and power insurance market in the world with US$1.77 billion in premiums in 2014, suggests new research from Finaccord, a market research, publishing and consulting company specializing in financial services.
Published on Wednesday, Finaccord’s study – Global Energy and Power Insurance: A Worldwide Review – found that energy and power insurance premiums worldwide, including business handled by captive and mutual insurers, amounted to approximately US$23.56 billion in 2014. This increased from about US$21.48 billion in 2010 – equivalent to a compound annual growth rate in nominal terms of 2.3%.
In 2014, this total market segmented between approximately US$14.16 billion from energy insurance premiums and about US$9.40 billion from power insurance premiums, with the United States “by far the largest market at around US$8.38 billion, followed by Canada at US$1.77 billion and China at US$1.45 billion,” Finaccord said in a statement. With regards to energy insurance premiums, in particular, these broke down between around US$7.15 billion from upstream insurance, around US$2.17 billion from midstream insurance and around US$4.84 billion from downstream insurance.
Territories in scope included Brazil, Canada, China, France, the GCC countries (i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates), Germany, Japan, Nigeria, the United Kingdom and the United Sates, “with the rest of the world expressed as a residual balance in the overview report for both energy and power insurance,” the statement said.
“At the global level, upstream energy insurance premiums have been growing at twice the rate of midstream premiums, while downstream premiums actually declined between 2010 and 2014,” said Finaccord consultant Christian von Celsing in the statement. “The more rapid increase in the value of the upstream segment can be attributed to rising exploration and production worldwide. On the other hand, it is generally the case that insurance pricing for downstream assets has been subject to the most pressure.”
As for power insurance premiums, these broke down in 2014 between around US$7.28 billion from conventional power insurance and around US$2.13 billion from renewable and other power insurance, Finaccord noted in the statement, adding that a “key global trend has been the rapid growth of renewable and other power insurance premiums given that these had a worldwide value of around US$1.55 billion in 2010.” [click image below to enlarge]
Von Celsing noted that premiums deriving from insurance for solar and wind power have been rising “especially rapidly. This can be expected to continue in future albeit the policies of national governments in this field are often inconsistent or uncertain.”
Looking ahead to 2018, Finaccord forecasts that energy and power insurance premiums worldwide will increase to a value of approximately US$24.59 billion under a low oil price scenario (segmenting between around US$14.14 billion in energy insurance premiums and around US$10.45 billion in power insurance premiums). In a high oil price scenario, this would be about US$26.15 billion (segmenting between around US$5.70 billion in energy insurance premiums and the same value for power insurance premiums as in the low oil price scenario).
The difference here is attributable mainly to the upstream energy (oil and gas) segment, which fluctuates between representing 28% and 32% of overall energy and power insurance premiums in the low and high oil price scenarios, respectively.
“While the future price of oil has little impact on the future value of power insurance, it would influence the outlook for energy insurance, especially upstream insurance,” von Celsing concluded. While far from an exhaustive list, other key trends impacting the outlook for energy and power insurance worldwide include the likely or possible growth of hydraulic fracturing (fracking), deepwater drilling, Arctic development, solar power and wind power, “all of which are conducive to growth and innovation, and on the other, persistent underwriting overcapacity, which depresses premiums, especially in mature markets,” he said.