Canadian Underwriter

“New normal” may be emerging in global energy insurance markets: Willis Towers Watson

April 12, 2017   by Canadian Underwriter

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The energy sector is still beset by some significant challenges, including low oil prices, but there may also be a “new normal” emerging in the global energy insurance market, according to global advisory, broking and solutions company Willis Towers Watson (WTW).

 On Wednesday, WTW launched its Energy Market Review for 2017. The review found that despite an “encouraging uplift” in the energy industry during the last 12 months, the sector is still beset by some significant challenges, including low oil prices, cost control pressures, workforce layoffs, onerous legislation and regulation and the escalating risk of cyberattacks, “which may reflect a new normal in the industry,” WTW said in a press release.

“At the same time, there may also be a new normal emerging in the global energy insurance markets,” the release went on to say. “The abundance of reinsurance market capital, the driving dynamic behind market conditions now for nearly a decade, is likely to remain dedicated to the industry – no matter what individual sector loss records produce,” the review adds.

Key insurance market findings from the review include:

  • Capacity – Upstream market capacity is up from US$7.56 billion to US$7.72 billion, international downstream from US$6.19 billion to US$6.5 billion and international liabilities from US$3.2 billion to US$3.3 billion;
  • Losses – Over US$5 billion of upstream energy losses were recorded for 2015, the highest loss total for five years. Meanwhile, downstream energy losses for 2016 now stand at US$2.58 billion, up significantly from 2015’s total of US$1.91 billion;
  • Premium income – From a high of 1.06 billion pounds in 2014, in two years, Lloyd’s premium income from energy business has declined to just 700 pounds million in 2016;
  • Profitability – While individual energy portfolios have generally remained profitable during 2016, WTW said that it believes that “should the current loss record deteriorate by only a small degree during 2017, this might well be sufficient to threaten their viability”;
  • Competition – Competition in all energy markets remains robust, fuelled by the broadening of leadership options in all lines of business; and
  • Outlook – As of April 2017, markets are still softening, albeit at a decelerating pace, which may transition into a broader bottoming out of market conditions should individual portfolio loss records deteriorate further late in the year.

“The long-term outlook for energy insurance buyers remains uncertain,” said Neil Smith, global product lead of natural resources lines with WTW, in the release. “History teaches us the market conditions in these lines of business can change rapidly, and should this prove to be the case, buyers will need to ensure they have the right strategy in place to ensure the continued viability of their risk transfer programs.”

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