Energy transition resulting from climate change continues to transform industry risk landscape, according to Willis Towers Watson

SINGAPORE, April 8, 2021 – Climate change and the resulting energy transition continues to transform the energy industry risk landscape, and remains the dominant issue facing the sector, according to Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking, and solutions company, at the launch of its annual Energy Market Review.

The report outlines how the global energy system is currently being overhauled, with the threat of flows of fossil fuels from fields around the world, through pipelines and tankers to refineries near to consuming markets, disappearing or changing radically to more renewable energies such as wind, wave and solar power.

Conditions in almost every arena of the Energy insurance markets continue to harden, although rate increases are expected to be more moderate for some risks. The Report outlines the following:

• Capacity: Total theoretical capacity has now increased for both Upstream and Downstream Property, and now stands at US$9.2 billion and US$6.2 billion respectively, depending on region and risk profile. However, management pressures continue to prevent much of this capacity from being deployed in practice, and realistic levels now stand at US$7.0 billion and US$4 billion respectively. For Liability, overall theoretical levels remain static at around US$3.0 billion, but realistically stand at US$1.0 billion for most Energy business, depending on region and risk profile.
• Profitability: Both the Upstream and Downstream Property markets are likely to prove profitable for 2020, whereas the Liability portfolio continues to run at an overall loss.
• Rating levels: A two tier market has developed for Property business, with sought after business featuring a good spread of risk and premium income attracting more moderate rate rises than the remainder of the portfolio. Liability rating increases continue to depend heavily on the amount of programme limit required.

George Nassaouati, Head of Natural Resources Asia, Willis Towers Watson (WTW), said: “In the past 12 months, we have seen some quite extraordinary developments around oil price, demand destruction and an even sharper focus on environmental, social and governance issues and so there is no denying there are increasingly wider challenges facing the energy industry. However, it is the issue of climate risk that continues to dominate the sector and we are increasingly seeing an acceleration of the energy transition that will have a significant impact on the future shape of the industry. In short, today’s energy businesses are needing to consider how they establish robust transition plans to ensure a sustainable future. Here in Asia, we are seeing a lot of interest from Energy companies in meeting their energy transition targets as they look ahead to ensure a greener footprint. At WTW, we will continue to work with our clients to help them manage their risk through the transition and achieve these new objectives as rapidly as possible.

As we move further into 2021, we anticipate the overall Energy insurance market in Asia to remain consistent. Insurers are firm on their requirements, translating into inelastic premium levels, costlier coverage or extensions and higher insurance costs. As a result, Energy companies should consider setting aside some buffer in their insurance budgets. With some recovery in oil price, we are also seeing an increase in the number of Energy construction projects. However, aggregation is fast becoming an issue for Energy companies that are based in Myanmar and Thailand, which may lead to restricting competition in some risks and future construction activities.”

The 2021 Energy Market Review also includes contributions from Energy companies, insurers and key energy stakeholders, and highlights the importance of using risk quantifications and analytics to conduct energy transition initiatives.

A full copy of the report can be found here.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance.