According to the annual Energy Market Review by global re/insurance broker WTW, the need to manage energy transition risk is being accelerated by the requirement to seek alternative sources of energy to oil and gas, following events in Eastern Europe.
The report also covers the volatility of the energy sector, with commodity prices surging to record levels arising from higher demand as economies emerged from the COVID-19 pandemic, as well as a concern around higher inflation rates.
But, the report also addresses that, although hardening conditions in the Energy insurance markets are easing, companies will still need better data, more convincing ESG strategies and careful monitoring of underwriting trends to manage any future market volatility.
Furthermore, the report outlined other developments within the Energy insurance markets, particularly highlighting that the total global capacity for 2022 has reached another record level, now standing at nearly US$9.4 billion, up from US$9.25 billion in 2021.
In addition, for International (non-North American) business, overall capacity now totals US$6.3 billion, up from US$6.1 billion in 2021, while for North American risks total capacity has now increased to US$4.1 billion, from US$4.0 billion in 2021.
The report also states that International Liability capacity has now increased to US$2.9 billion, up from US$2.6 billion in 2021.
In general terms, most Energy lines of business returned to profitability in 2021, resulting in an easing of the ongoing hardening market conditions.
Meanwhile, in all lines of business, rating level percentage increases are significantly less than in 2021 and in some cases “flat” renewal terms are now being secured.
But, a combination of factors is preventing a wholesale market softening, including restricted insurer leadership options and concerns regarding the effect of the situation in eastern Europe on premium income streams.
Head of Global Natural Resources, WTW, Graham Knight, commented: “At the moment, the scales are finely balanced in all our markets; on the one hand most portfolios have returned to profitability, while on the other, the absence of any fresh underwriting leadership and a reluctance of insurers to “break ranks” is preventing brokers from forcing through any fundamental changes in market dynamics.
“How the markets react to premium income depletion as a result of sanctions and a short term increase in fossil fuel activity remains to be seen. In the meantime, the energy transition will wait for no one; every risk manager involved in the industry will need to address the uncertainties arising out of both the new geopolitical landscape and the mounting momentum towards achieving Net Zero emissions targets.”
