Gallagher highlights softening energy insurance market

The upstream energy insurance market is experiencing a softening trend, with improving terms on property insurance renewals in most subsectors of upstream energy, according to Gallagher. The midstream market has seen a tightening of policy terms and conditions, while the downstream market is softening with increased capacity.

Gallagher’s Energy, Power, and Renewables Insurance Market Update report says there has been a renewed appetite for underwriters looking to increase their market share and deploy capacity in the upstream class, and the market is now tipping in the buyer’s favour.

The broker says the theoretical market capacity is now touching $10bn, an all-time high. “There are pockets of the upstream market that continue to be a challenge; however, most of the well-known and popular risks that have renewed in the first half of 2024 would have experienced improving conditions. Single-digit rate decreases for offshore exposures have become the norm, with examples of significant reductions being made available to those accounts willing to compete for their leadership.”

It adds that the industry has never been more focused on safety and any reputational damage that a loss could cause to the integrity and reputation of the industry, and this has in turn meant that upstream underwriters continue to try to deploy capacity into the sector, which continues to apply pressure on rating.

Gallagher also notes that while ESG continues to be a concern for investors and insurers, the broker hasn’t seen a withdrawal of capacity owing to ESG pressures.

The midstream market has seen a tightening of policy terms and conditions, namely around additional coverages such as interruptions from denial of access and civil and military authorities, says the report. It points to continued downward pressure on the rating environment, which has already moved average programme rate increases into the early single-digit region, but overall, the midstream sector remains harder than the traditional upstream market.

As for the downstream market, it is softer in terms of ratings, dependent on numerous factors, including premium volume, loss record, risks deemed to be well-engineered, and the amount of critical nat cat exposure, says Gallagher. Areas that require continued monitoring are ESG, business interruption, valuations, and more recently, wildfires

According to Gallagher, the power generation market has not seen the significant injection of capacity that buyers need to meaningfully suppress the current rating environment. But it says there are signs of change ahead and hopefully a better buying environment, with some positive signs emerging.

“Global capacity for this risk class is still very abundant, with no major exits from the power market in recent months. What’s even better for buyers is that as more MGAs appear, and more Lloyd’s property syndicates consider writing power and wider energy business to supplement premium losses on their direct and facultative books, there will be increased competition that helps to drive down pricing,” says Gallagher.

On the renewables side, the report notes that the offshore wind market remains attractive to new insurers coming in to increase market share globally, while the BESS market is stable as site layouts have become more uniform in guidelines for spacing and equipment separation, adding that this enables insurers to quantify probable maximum loss values more accurately, which supports rating and deductible stability.

Gallagher concludes on renewables: “Overall, the downward premium rating turn of the market has begun to take place for clean or well-running accounts where competition among insurers for market share is taking place. Further improvements to existing technology protections and performance will continue this trend as new and existing insurer capacity increases.”