Capacity levels for energy risks increased by 5%: Willis

Capacity levels for energy risks have increased by approximately 5%, based on little or no withdrawals from the energy insurance market in January 2009, the latest Energy Market Review from Willis has found.
“With capacity levels up at the start of 2009, the energy insurance market remains relatively stable, despite insurers seeking rate increases and the energy industry trying to maintain profitability,” Willis notes in a press release announcing the report.
U.S. insurers are seeking rate increases to shore up long-term profitability in this sector, as recapitalization becomes an increasingly expensive prospect, Willis notes.
“Since the third quarter of 2008, underwriters’ profitability has been buffeted by larger-than-expected windstorm losses from Hurricane Ike and a reduction in investment income due to the global financial crisis,” Willis says. “Added premium that was generated by higher asset values, brought on by the ‘superheated’ commodity prices of the past, is now coming under pressure as those asset values fall.
“Without that prop to offset a soft market, insurers now are seeking to maximize underwriting profitability through higher rates.”
Willis says energy companies will be seeking to resist the prospect of a hardening market, since they will be seeking to shore up their own profitability in the face of plummeting demand and crude oil prices that are now a third of their 2008 peak.
“These developments have implications for future capital expenditure plans and existing asset values, and could lead to reduced premium income for energy insurers,” Willis predicts.