Research

Insurance Marketplace Realities 2019 — Energy

November 6, 2018

Upstream energy

Rate predictions

  Trend Range
Upstream energy No change or slightly up Flat to +5%

Key takeaway

Be prepared to restructure your program to mitigate today’s modest rating upswing, giving plenty of notice.

July 1 renewals saw modest rate rises compared to steeper increases in the first six months of 2018.

  • Insurers impacted most by 2017 windstorms are pushing for higher rate increases.
  • Losses continue to be modest by historical upstream standards, leading to a less volatile rate environment.
  • We have seen little change in overall underwriting capacity despite a handful of market withdrawals in 2018.

Carriers will focus on profitability over premium income generation.

  • Income targets are less ambitious.
  • Business planning processes are now more heavily scrutinized by senior management.
  • Insurers are prepared to walk away from unprofitable business, despite the premium volume on offer.

The presence of major insurers is growing through mergers and acquisitions.

  • Larger insurers can now boast significant capacity, enabling them to dominate the market and displace competitors.
  • Established insurers with more modest capacity are expected to lose market share.

Smaller insurers may prove to be more competitive in the months ahead.

  • Smaller insurers may need to become more competitive to maintain portfolio viability.
  • Opportunities exist for buyers to take advantage of an evolving marketplace by restructuring their programs.

Downstream energy

Rate predictions

  Trend Range
Downstream energy No change or slightly up Flat to +10%

Key takeaway

The capacity now available to buyers is increasingly determined by individual risk profiles and relationships with key carriers.

The downstream energy portfolio continues to suffer from an adverse loss record.

  • 2017 brought the worst losses of the past 10 years.
  • Six losses over $50 million have already been reported for 2018.
  • Insurers that have not suffered from major losses will be more competitive.

Carriers will focus on profitability over premium income generation.

  • London market operations are coming under sharper scrutiny.
  • We are seeing significant apprehension in the market over individual underwriter positions — enhanced by recent mergers and acquisitions.
  • Income targets are now more realistic.
  • Insurers are prepared to walk away from unprofitable business, despite premium volume on offer.
  • Capacity available for programs not perceived as profitable is therefore becoming more limited.

Centralization of underwriting authority reinforces the gentle hardening dynamic.

  • Many underwriters can no longer commit to significant programs without reference to senior management.
  • Erosion of underwriting authority has prevented buyers from achieving more competitive terms from the market.

Higher program limits are being sought by several significant buyers.

  • Factors motivating program expansion include rising oil prices, higher valued plants and increased BI values.
  • This trend should yield increased premium income for insurers.

Some areas of the market remain competitive.

  • We have not seen, nor do we expect, significant market withdrawals.
  • Recently relaunched underwriting operations are looking at existing business afresh.
  • Restructuring programs will help buyers find opportunities.