The energy insurance market is poised to enter 2014 with abundant capacity and competitive terms for energy firms with good claims histories, due to the absence of a major windstorm loss in the Gulf of Mexico for five consecutive years.
According to Marsh’s latest Energy Market Monitor, capacity in the global energy insurance market for upstream risks currently stands between $3.75 billion and $4 billion. In the downstream energy market, insurance capacity plateaued in final quarter of 2013, creating a slight downward trend for firms with good risk profiles. Capacity stands at approximately $3.5 billion for non-US risks and $2.5 billion for US downstream risks.
Andrew George, Chairman of Marsh’s Global Energy Practice, commented: “Current insurance market conditions indicate a positive purchasing environment for energy firms next year. There is now an expectation among buyers that savings and improved terms may be obtained at renewal.
“However, Typhoon Haiyan serves as a reminder of how devastating the impact of weather can be on both human life and assets. If this typhoon had affected one of the many prolific energy ‘hot spots’ in Southeast Asia, this would have inevitably had an impact on the market in 2014.”
While insurance market conditions for upstream and downstream risks look to remain favourable in 2014, pricing for casualty risks is unlikely to move downwards due to a continuing lack of capacity. Marsh reports that rate increases of between 3% and 7% for some risks in Q4 2013.
“Insurers believe that their casualty products for energy risks are under-priced as they continue to consider their cost of capacity. Underwriters are becoming more focused on the specifics of energy companies’ business models, which is leading to weight being given to firms’ risk management processes in insurers’ risk pricing decisions,” added Mr George.
“Energy firms are increasingly leveraging analytical tools to differentiate their risk profiles and demonstrate superior risk management practices to insurers. Those firms that are able to present a detailed knowledge of the myriad risks facing their business are in a stronger position to secure competitive programmes at renewal in 2014.”
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