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Survey Report

Insurance Marketplace Realities 2020 – Energy


November 13, 2019

More losses reported in the $100-$400 million range are hurting the direct market as it increases reinsurance program retentions — resulting in an accelerating hardening process.


Price predictions
  Trend Range
Favored business Increase (Purple triangle pointing up) +20% to +30%
Less favored Increase (Purple triangle pointing up) +30% and above

Key takeaway

More losses reported in the $100-$400 million range are hurting the direct market as it increases reinsurance program retentions — resulting in an accelerating hardening process.

This is the first year that capacity has fallen in the downstream market since 2002.

  • Theoretical capacity is down to $6.25 billion (from $6.5 billion) for international, $3.7 billion (from $4 billion) for U.S. risks. Realistic capacity — capacity that can actually be obtained in practice — is $3 billion and $2 billion respectively. As we move further into 2019, achieving even these capacity levels is becoming increasingly challenging.
  • Lloyd's (i.e., the corporation of Lloyd's) has been scrutinizing the profitability of individual syndicates and has refused to grant more capacity to syndicates writing downstream energy.

Loss record continues to deteriorate.

  • Losses in recent years may be declining but overall the picture is bracing: $6.5 billion in 2017, $4.2 billion in 2018 and over $3 billion projected for 2019.
  • Recent losses in North Africa, the U.S. and the Middle East fuel the fire.
  • Indirect effects of Hurricane Dorian and the Saudi drone attack contribute to market resolve.

The hardening process now intensifies as alternatives are hard to find.

  • Favored business — buyers with good loss records loyal to leading insurers— can expect less severe increases.
  • Reinsurance pricing moves remorselessly upward — and insurers are retaining more risk.
  • Double-digit rate increases are now standard: 30%+ for refining clients, more for loss impacted programs.
  • Line sizes are being trimmed, resulting in fewer placements being over-signed.


Price predictions
  Trend Range
Downstream energy Increase (Purple triangle pointing up) +2.5 to +10%
Loss-impacted/North American exploration and production (E&P) business Increase (Purple triangle pointing up) +10% to +30%

Key takeaway

Although the upstream energy portfolio remains profitable for now, buyers must understand that the hardening conditions in related lines are having an increasingly negative impact on pricing.

Upstream capacity is still at record levels.

  • Theoretical capacity is over $8 billion; realistic capacity is at $6.5 billion for operational risks.
  • Buyers may still find it difficult to secure full market participation at competitive terms.
  • Programs for some construction projects valued at over $5 billion will prove challenging to complete.

Buyers face a modestly hardening rating environment.

  • We are seeing increases of 2.5% to 10% for highly-regarded risks, but larger increases (+10 to +30%) for loss-impacted risks and North American E&P business.
  • The sector is profitable but is being affected by negative results in related lines of business.
  • The placement process is taking longer.
  • More centralization of underwriting authority is contributing to pricing upswings.

Insurers are differentiating between different parts of upstream portfolios.

  • North American E&P business is being particularly impacted by poor loss records.
  • We expect significant upwards rating trend for offshore construction, particularly for subsea exposures. A number of insurers are reducing their offshore construction all-risks portfolio.
  • Major offshore infrastructure is being treated much more leniently.
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