According to a recent report by global re/insurance broker Willis Towers Watson, the energy industry faces change in its risk landscape due to the continuing effects of climate change.
At the launch of its annual Energy Market Review, Willis Tower Watson’s report outlined how the global energy system is currently being overhauled with the threat of flows of fossil fuels from fields around the world.
Conditions in almost every arena of the Energy insurance markets continue to harden, although rate increases are expected to be more moderate for some risks.
The report also showed that theoretical capacity has now increased for both Upstream and Downstream Property, and now stands at US$9.2 billion and US$6.2 billion respectively, depending on region and risk profile.
However, management pressures continue to prevent much of this capacity from being deployed in practice, and realistic levels now stand at US$7.0 billion and US$4 billion respectively.
For liability, over-all theoretical levels remain static at around US$3.0 billion, but realistically stand at US$1.0 billion for most Energy business, depending on region and risk profile.
Both the Upstream and Downstream Property markets are likely to prove profitable for 2020, whereas the Liability portfolio continues to run at an overall loss.
A two tier market has developed for Property business, with sought after business featuring a good spread of risk and premium income attracting more moderate rate rises than the remainder of the portfolio. Liability rating increases continue to depend heavily on the amount of programme limit required.
Graham Knight, Head of Global Natural Resources, Willis Towers Watson, said: “In the past 12 months we have seen some quite extraordinary developments around oil price, demand destruction and an even sharper focus on environmental, social and governance issues and so there is no denying there are increasingly wider challenges facing the energy industry.
“However, it is the issue of climate risk that continues to dominate the sector and we are increasingly seeing an acceleration of the energy transition that will have a significant impact on the future shape of the industry.
“In short, today’s energy businesses are needing to consider how they establish robust transition plans to ensure a sustainable future,” he continued.
“At Willis Towers Watson, we continue to work with our clients to help them achieve these new objectives as rapidly as possible. We do this from a risk advisory, analytical and engineering stand point, which is designed to help our clients accelerate their climate reduction targets and in doing so, enhance their profile within their external stakeholder community.”
