A new report from Marsh JLT Specialty has highlighted the ongoing divergence in rates between upstream and downstream energy markets, as the upstream market continues to struggle to achieve meaningful increases.
In contrast, downstream energy rates are gaining more traction, driven by withdrawals and cutbacks in capacity.
Other specialty lines – including marine hull & cargo, casualty, aviation, directors and officers, and onshore construction – are similarly showing extreme stress in providing capacity and are imposing rate increases.
Indeed, Marsh JLT Specialty now considers upstream energy to by the only “safe harbour class” for energy clients across the specialty insurance spectrum.
Upstream insurers were typically seeking rate increases of around 5% in early 2019, analysts noted, but by mid-year this target had slid to just 2.5%.
Additionally, the launch Convex is likely place further pressure on the medium to smaller sized carriers in the space, exacerbating the pressure on renewal rates to get to expiring terms.
In the downstream sector, Marsh JLT Specialty noted that renewals activity has continued throughout the typically slower third quarter this year, as budgeting, customer briefings, strategy preparations and coverage reviews are undertaken.
Clearly, analysts argued, customers and brokers have been employing wider marketing strategies to counter insurers taking advantage of increased rates to proportionately de-risk their portfolios and stabilise placements.
A number of insurers, as a consequence, are looking to staff up to handle the workload generated by this broadening of opportunity and for the analytics required by more intensive management scrutiny as they look to turn the sector back into profit.
A return to profitability will depend partly on how insurers tighten their coverage scope particularly around managing business interruption exposures and affirmation of cyber coverages, the report proposed.
Additionally, the downstream underwriting result will depend to some extent on the outcome of a June refining loss in the US.
If the loss comes close to current reserves then, coupled with the other established year to date losses and prior year deterioration, it will be close to the market’s annual global premium.
In the meantime Downstream rates remain disparate but as a rule of thumb are running between a 20% and 30% uplift, according to Marsh JLT Specialty.
The pricing dynamic continues to be undermined by opportunistic behaviour from some markets, although analysts maintained that such actions have been limited so far and can be managed with robust marketing strategies.