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Downstream energy sector sees first major capacity decrease since 2001: WTW

5th April 2019 - Author: Matt Sheehan

The downstream energy sector experienced its first significant decrease in underwriting capacity since 2001, according to a new energy market report by broker Willis Towers Watson.

energy-refineryDownstream capacity fell from $6.8 billion to $6.2 billion in the first major market turn since the aftermath of 9/11, WTW analysts said.

They attributed the decrease to a number of factors, including continuing losses and the unprofitability of related sectors such as power, minor and renewables.

The downstream sector experienced heavy losses last year, while the recent twin losses from Darwin, Australia are causing serious concern in the construction market.

As a result, WTW expects almost every programme in downstream energy to be subject to some form of rating increase.

In contrast, the upstream market experienced a marginal increase in capacity, WTW found, from $7.7 billion to $8.1 billion.

Upstream had another mild loss year, stifling the hardening dynamic in this market, although land rig and other onshore losses are currently causing insurer’s concern.

On balance, the upstream market has continued to generate underwriting profits, although analysts warned that it would not take much to change this should the current mild loss record deteriorate.

WTW also concluded that the prospects for the downstream energy portfolio look bleak unless there is some improvement in what has been a “disastrous couple of years for these insurers.”

“This year’s Energy Market Review highlights the inherent volatility in our insurance markets, which are now showing increasing signs of hardening,” said Graham Knight, Head of Natural Resources GB at Willis Towers Watson.

“In this challenging market environment, we have to adjust to the way in which energy industry risks are identified, collated and presented to insurers in an era where “Big Data” is king, and we have to be relentless in our pursuit of fresh ideas that produce valuable new products and services for the energy industry,” he continued.

Other risks to energy clients highlighted by WTW include the increase in geopolitical risks, such as cyber risk, and trade and political risk volatility.

The report also highlighted the increasing risk of governmental regulatory change around climate resilience, which it said may impact heavily on the energy sector.

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