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Energy reinsurance cedents continue to improve renewals: JLT

5th January 2017 - Author: Steve Evans

Ceding insurers in the energy insurance market have continued to make advances in improving their reinsurance program coverage at the recent January 2017 renewals, as the market remained one favoring buyers.

“Chronic overcapacity” continues to affect the energy insurance and reinsurance market, according to the latest update from Lloyd & Partners, the division of brokerage JLT Group that focuses on energy lines of re/insurance.

“As 2016 ends, we draw to a close one of best environments for insurance buyers in nearly twenty years, with the added advantage of financially stronger carriers who are generally less adversarial in claims settlements,” explained Senior Partner in the Energy Division John Cooper in the report.

But brokers continue to push for double-digit reductions in pricing, according to Cooper, which suggests that pressure will remain on the energy insurance and reinsurance sector despite the clear slowing of pricing declines at 1/1.

For energy reinsurance renewals at January 2017, “The signs are that many Insurers have improved their own insurance programmes but with a similar slowdown in the amount of reduction achieved,” Cooper wrote.

This is the experience across much of the reinsurance market at the January 2017 renewal, that the general direction of pricing remains down, but at a slowing rate.

Looking forwards into 2017 for the energy re/insurance market, Cooper forecasts that; “In the absence of a large catastrophe loss or significant withdrawals of capacity, the outlook for our industry
in 2017 will be a direct reflection of the industry outlook for our clients.”

With the energy industry facing its own issues, with oil prices still depressed and new build construction and commissioning projects waning, the chances of an uplift in demand for energy insurance and reinsurance look lower, which with the excess risk capital sloshing about may result in continued pressure on rates.

However, Cooper notes that the energy insurance market is looking increasingly fragile.

“The continuing stresses on the insurance market – chronic overcapacity, dramatic reduction in underlying activity, and fierce competition, means that it is becoming increasingly fragile and vulnerable to volatility.

“Despite the benign environment for clients over the past few years, we believe that 2017 may become very turbulent for parties on either side of the deal,” Cooper closed.

No matter how fragile the energy insurance market looks, it will take a major energy loss for the reinsurance sector to see an improvement in rate. With alternative capital increasingly targeting specialty lines such as energy it is hard to see capacity draining away from the sector in the near term.

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