Insurance Capacity in the Global Energy Markets Leaps to the Highest
Level this Century
London, UK, April 8, 2014 – Theoretical insurance capacities in both the upstream
and downstream oil and gas insurance markets have increased to the highest levels
seen this century, according to Willis Group Holdings plc (NYSE: WSH), the global
risk advisor, insurance and reinsurance broker.
Heavily over-capitalised global (re)insurance markets combined with a glut of new
capacity from non-traditional providers -such as pension funds, hedge funds and
investment banks -has increased competitive pressures in the energy insurance
market to unprecedented levels, according to Willis’s annual Energy Market Review.
Total theoretical upstream market capacity now stands at US$5.7 billion and the
equivalent downstream total is now at US$4.6 billion, according to the report.
Meanwhile, statistics from Lloyd’s of London suggest that the overall energy premium
pool available to insurers may be reducing for both markets.
Given these conditions, Willis expects it may take more than a run of catastrophic
losses to provoke any significant capacity withdrawal from the energy sector.
In 2013 the energy loss record was no worse than average, noted Willis’s report. On
the upstream side, the Willis Energy Loss Database recorded only a handful of
losses in excess of US$200 million, while on the downstream side, although there
have been three serious incidents in Argentina, the USA and Canada, the loss record
continues to improve.
At the same time, the report notes that the energy industry itself might be sitting on
an uninsured cyber-attack time bomb. While insurance cover is readily available for
non-catastrophic cyber-attack losses to data and intellectual property, it can be much
more challenging to access cover for a truly catastrophic event involving physical
loss or damage or business interruption running into billions of dollars. Certain
markets, however, have emerged recently with the appetite and capacity to provide
energy companies with at least a degree of cyber-attack insurance cover.
Commenting on energy insurance market conditions, Alistair Rivers, Global Head of
Natural Resources at Willis, said: “With no obvious alternative investment
opportunities emerging, and with interest rates around the world still low in relative
terms, capital providers are likely to maintain their funds in the (re)insurance markets
where they are currently deployed – at least for the short term. Energy market
capacity is therefore likely to continue to be available, even if the sector falls into
He continued: “The difficulty with predicting how market conditions will turn out in the
next few years is that this is the first time we have seen capital deployed in the
insurance markets that is unlikely to be put off by short term underwriting
unprofitability. In previous market eras, we have always found that a major
catastrophe or series of losses – for example, Piper Alpha, 9/11 and the 2005 Gulf of
Mexico hurricanes – has led to a withdrawal of capacity and harder market
conditions. But now we think it will take more than a headline-grabbing loss to
precipitate a withdrawal. Capital providers would have to find an alternative haven for
their money if they are to withdraw from the insurance arena.”
Willis Group Holdings plc is a leading global risk advisor, insurance and reinsurance
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