In its Energy Market Review 2018, Willis Towers Watson reported that last year the downstream energy sector suffered its worst loss record for almost a decade, although it maintains the broader energy insurance market remains stable due to the abundant availability of re/insurance capital.
The Downstream energy sector suffered losses of over US $5.5 billion in 2017, with few re/insurers recording a profitable year, which is largely attributable to the impact of 2017’s Gulf of Mexico hurricane season.
In contrast, the Upstream sector recorded a fairly benign loss year (under $1.3 billion), and has remained generally profitable, according to Willis.
Additionally, the review found that capacity for Property markets in both sectors saw a slight increase in 2017, up to $7.95 billion for Upstream and $6.8 billion for Downstream.
The rating levels for the overall energy market also saw modest increases last year, ending a recent downward trend for most buyers.
Willis suggested that negative impacts on the Energy re/insurance markets were likely mitigated by the continuing abundance of re/insurance capital, which has dampened re/insurers’ efforts to effect a return to rating levels where their models indicate that long-term profits for these portfolios can be sustained.
Neil Smith, Head of Natural Resources P&C at Willis Towers Watson, commented: “Looking back at the terrible hurricane season in 2017, we can now say with some confidence that the apprehension felt by many energy insurance buyers in the immediate aftermath of these hurricanes has to a large extent been unfounded.
“Despite the 2017 storms producing well in excess of US$75 billion of insured losses, the turnaround in market conditions has been much more modest in comparison to other major events of the last decade.
“We recognise that insurers now have to consider whether to continue to invest heavily in these portfolios or to scale back to wait for better conditions to materialise. Both options carry risks, which suggest that the outlook for the energy insurance markets remains an uncertain one.”