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Downstream energy sector unlikely to harden in 2018: Lloyd & Partners

27th April 2018 - Author: Matt Sheehan

Lloyd & Partners, an international wholesale brokerage and trading name of JLT Specialty, has outlined a number of factors that are contributing to a less significant hardening of the downstream energy sector than many re/insurers had anticipated for 2018.

energy-refineryThe three most significant factors were supply continuing to surpass demand, lack of major market losses in the year to date, and the 1/1 treaties, which provided no convincing increased cost impact to direct and facultative markets.

A correction in the fourth quarter of 2017 ended the downward rate spiral, but Lloyd & Partners found that this reversal hasn’t been carried into 2018, with rate movements remaining broadly similar to those observed in Q4 2017.

The report also observed that the broking community has already recognised the oversupply and begun testing the market for rate reductions, with some businesses less prone to Nat Cat exposures expected to see rates fall throughout the second quarter.

However, most re/insurers are expected to maintain their rates until the third quarter, when 80% of their annual business volume will be done.

Lloyd & Partners contended that unsustainable rates are being propped up by an oversupply of capacity, which will eventually lead to widespread withdrawal from the class, although some markets are being assisting by clients with focus on the long term.

Corporate annual results for 2017 have generally been poor for re/insurers due to Nat Cat losses in the property sector, strategic or fiscally required reductions in reserves, and the attritional level of rates, and another costly Nat Cat year could have severe consequences.

This sector outlook follows a recent report by Willis Towers Watson, which observed that the downstream energy sector suffered its worse loss record in 10 years in 2017.

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