Growing capacity and increased insurer appetite in energy market, says Marsh

Capacity surplus in the upstream energy sector is driving competition among insurers, which is good news for buyers, according to Marsh Specialty. For downstream energy, there has been limited new capacity but increased insurer appetite is creating a positive effect, says the broker. For traditional power and renewable energy, single-digit rate increases are the norm, with some flat renewals and even reductions, according to Marsh Specialty’s Energy & Power Newsletter Q1 2022, while the energy casualty market is still pushing for increased rates, driven by social inflation and growing jury judgments. Marsh says in the newsletter that this positive trend for insureds will likely continue, at least in the short term, “as the sanctions imposed as a result of the Russia-Ukraine crisis have removed about $100m of potential revenue for a profitable upstream premium from the market”, adding: “While insurers may still seek small level rises, the market dynamics are not in their favour.” However, the broker points to an exception: coverage for offshore Gulf of Mexico assets, where capacity remains very tight and upstream insurers continue to compete (internally) with other classes for the US named windstorm aggregate capacity. For downstream energy, the Marsh newsletter states that rates have flattened “and the momentum has now moved from leveraging expensive capacity downwards to focus on genuine pressure for rate reductions”, adding: “At the end of the quarter, there is a clear oversupply of capacity, with rates broadly flat to dipping, premium pricing deltas closing and more alignment in policy terms.” Marsh adds that a more sustainable trading environment with reduced uncertainty will benefit both insureds and insurers. For traditional power, there were single-digit rate increases during the first quarter, or even flat rates and rate reductions, for straightforward renewals with clean loss records and no natural catastrophe exposures. “This stabilising was aided by wider marketing to global insurers and restructuring of coverage, with some clients choosing to accept higher retention levels as insurers shift their pricing focus to tightening terms and conditions,” Marsh notes. The broker highlights the continuing trend by insurers to withdraw from any coal participation as they realign to environmental, social, and governance guidelines. “This will continue to increase pressure on this challenging sector as capacity continues to diminish. Given the remaining shallow pool of insurers, the restructuring of programmes is now commonplace, alongside the need for a more global placement approach and a re-evaluation of the risk transfer strategy of clients,” states the newsletter. Renewable energy accounts with key components nearing the end of their warranty periods, or those with historic loss activity, have experienced more significant rate increases, says Marsh, but terms and deductible levels continue to remain stable on operational renewal business. In terms of capacity, Marsh says existing renewable energy insurers have ambitious premium growth targets for 2022, “and we have continued to see markets diversify into the renewable energy sector (both onshore and offshore), principally from the conventional power and upstream oil and gas sectors”. Marsh stressed that the majority of new markets have entered as follow-on participants rather than providing lead capacity, and many insurers continue to take a cautious approach to construction business, due to the global supply chain disruption and inflation pressures on raw materials.

Growing capacity and increased insurer appetite in energy market, says Marsh

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