Downstream continues to see the largest rate increases in an overall hardening energy re/insurance market, according to Marsh JLT specialty, although there are signs that the upstream sector could soon step up a gear.
Analysts noted that market correction efforts accelerated relentlessly for downstream energy across all regions in the fourth quarter of 2019.
Insurer discipline appears to have strengthened, and the combination of withdrawals from class and reduced capacity deployment has reversed the supply/demand balance in the market.
Global aggregated reserved losses for the downstream sector are also now above $12.5 billion, which compares with gross premiums benchmarking at less than 50% of this figure.
Marsh JLT Specialty believes that rate increases will continue in this space for the foreseeable future, and will be accentuated in refining with a lighter touch in relation to midstream and petrochemicals.
Certain sectors, where rates have been traditionally considered low, are even likely to see an acceleration, the firm added.
In the upstream sector, meanwhile, the veneer of the market appears to be healthy, with generally good loss ratios for insurers.
Capacity is similarly at an all-time high, and the entrance of Convex to the market, with its $350 million upstream line, will also constrain the increases competitors would like to charge, analysts suggested.
However, many risk managers are now struggling to source insurance at terms that would readily available last summer, and previously plentiful coverage, such as first loss reinsurance, has now become more difficult to obtain.
Marsh JLT Specialty believes the general trend on clean upstream energy renewals is currently firming in the region of between 2.5% and 5%.
That said, the firm argued that the market could be only one or two sizeable losses – or a series of attritional losses – away from seeing a major contraction in capacity, which would result in a significant acceleration in rate hardening.