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Survey Report

Insurance Marketplace Realities 2021 Spring Update — Energy


April 21, 2021

Expect hardening to continue for downstream energy. Positive factors are limiting continued market hardening in upstream energy.
Rate predictions
  Trend Range
Favored programs: Increase Purple triangle pointing up) +12.5% to +20%
Where technical rating adequacy yet to be achieved: Increase Purple triangle pointing up) +20% to +30%
Major loss-free operating programs: Increase Purple triangle pointing up) +5% to +7.5%
Midstream, Offshore Construction & loss-impacted programs: Increase Purple triangle pointing up) +12.5% to +75%
Offshore contractors: Increase Purple triangle pointing up) +7.5%
Onshore contractors: Increase Purple triangle pointing up) +7.5% to +12%
Land exploration and production (E&P): Increase Purple triangle pointing up) +10%
Midstream: Increase Purple triangle pointing up) +15%

Key takeaway

Downstream: As in other lines, we are in a two-tiered market. Conditions have eased for the most sought-after programs — but not for the remainder.

Upstream: A two-tiered market has developed between offshore property and other E&P business on one hand and midstream, offshore construction and smaller business on the other.


Positive factors restrain the hardening process for the most sought-after business.

  • A much improved loss record led to a generally profitable 2020 — and decelerating rate increases are expected for the balance of 2021.
  • An increased premium pool, a result of increased rates charged in the last 24 months, promotes market interest in the attractive risks.
  • We have also seen increased capacity, with no major withdrawals this year.
  • Some buyers are approaching the marketplace with a strategy of retaining more risk.

Negative factors mean the hardening process continues for the rest.

  • We await the possible impact of the recent Texas cold weather losses.
  • The energy sector is affected by the unprofitability of related sectors, including power, mining and renewables.
  • Insurer management is exerting pressure to maintain pricing discipline and increased rates.

COVID-19 has impacted business interruption (BI) values.

  • Oil prices plummeted at the start of the pandemic.
  • Dramatic reduction in economic activity has also led to revenue reductions for many downstream companies.
  • Current volatility in oil prices and economic activity is likely to have a profound effect on the volatility of downstream BI values for the foreseeable future.
  • New market clause LMA 5515 factors in maximum percentage of the margin of error between actual and declared values BI, as well as any premium adjustments — so it is vital for buyers to keep values up to date and accurate if full the quantum of future BI claims is to be paid.

A two-tiered market is now in place:

  • Tier One: Good clean risks where insurers are closer to what they believe to be rate adequacy after two years of rate increases — rate increases are less than they have been (+12.5% to +20%).
  • Tier Two: Midstream, offshore construction, smaller and loss-impacted programs can expect to pay more (+12.5% to +75%).


Positive factors limiting continued market hardening:

  • Capacity is now at record levels ($9 billion), with no sign of withdrawals.
  • Some insurers now have significant growth targets, fueling competition.
  • Reinsurance cost increases at January 1 were more modest than anticipated.

However, negative factors ensure that the overall hardening dynamic remains.

  • The sector suffered a decline in E&P activity and in BI/loss of production income values during the COVID-19 crisis.
  • Continued losses in other parts of the property and casualty portfolios of insurers weigh on this sector.
  • Underwriters face continued management pressure to maintain pricing discipline and increased rates.

Overall, a benign loss record has kept the portfolio profitable for insurers.

  • 2020 continued the benign overall loss record of the previous three years.
  • Premium income was impacted by lack of E&P activity, but we expect total premium will fall only 5% compared to last year.
  • Lloyds statistics point to overall profitability, although offshore property results are much superior to onshore property and operators extra expense (OEE).

Offshore construction portfolios continue to deteriorate.

  • This subsector has seen a significant disparity between premiums and losses for each of the last three years, with losses outpacing premiums.
  • One major leader has withdrawn from this portfolio entirely.
  • Others maintain a presence, but the enthusiasm for subsea projects in particular is much diminished.

A two-tier market has opened.

  • Tier One: Major E&P programs, smaller lease operators, offshore and onshore contractors can expect smaller increases (+5% to +12.5%).
  • Tier Two: Midstream, offshore construction, smaller and loss-impacted programs can expect to pay more (+12.5% to +75%).


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.


Business Development Director for Willis Towers Watson Natural Resources

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