ANDREW BRUNERO: Thank you for inviting me, Marie.
MARIE REITER: And also by George Richardson, a Senior Broker in our Upstream team.
GEORGE RICHARDSON: Good morning, Marie. Great to be here.
MARIE REITER: And finally, by Mike Newsom Davis, our Global Head of Liability.
MIKE NEWSOM DAVIS: It's a pleasure to be here.
MARIE REITER: To kick us off, I would love to hear from all three of you, what is your key takeaway for readers of the November Energy Market Review update? Maybe if we start with you, Andrew.
ANDREW BRUNERO: Key takeaway. I would certainly say, even with all the losses that are in the market at the moment, it certainly still is a buyer's market, for sure. If you look for where it was back in April, there are losses out there. There was some of circa eight losses, but back in April.
That has now been pushed out to-- I think it's either 13 or 14, which has put circa about another billion dollars into the market from a loss point of view. So the losses are there, but also, there's a lot of pressure from management for underwriters to hit budget. So again, it's still out there. It is still a buyer's market, albeit with all the loss activity.
MARIE REITER: What about you, George?
GEORGE RICHARDSON: Yeah, I mean, it continues to be a challenging market. It is certainly a soft market, so it's a great time for clients to come and buy insurance. Having said that, a big caveat is it does depend very much what the assets are within the portfolio that you're bringing to the market. So we've talked a lot about clean offshore operational business being the most attractive, and that very much continues to be the case.
Our conversations with underwriters at the moment, if you were to take everything they say literally, you would think that there is no margin left, that the attritional claims, the rising costs mean that they are really struggling to still be profitable. However, our big, big kind of response to that is reductions are still being given. People aren't pulling out the class. And therefore, underwriters must be making money.
And off the back of that, our advice to clients is, test your leader. We are big fans of relationships, and having stability and having consistency with leaders. We always advocate for that. But make sure that your incumbent leader, however long they've been leading your program, is being tested in this market.
MARIE REITER: Excellent. Now, passing over to Mike, what is your key takeaway from the Energy Market Review update?
MIKE NEWSOM DAVIS: In respect of liability, the key takeaway, it's quite a divided market. So depending on where you're located, your experience will be very different. I think the key differential is between the US jurisdiction exposed risks and the international risks. US casualty, probably the only line of business where we're seeing rate increases across probably all classes driven by social inflation, core loss ratios, particularly for US auto and general casualty. So key takeaway there is we're seeing and planning for continued rate increases on that side.
On the international side, we're seeing reductions, but the experience is very different depending on the territory. For risks that can be placed with small limits domestically in the local domestic markets, there's a lot of competition, so we're seeing some quite meaningful reductions. For European risks or the larger risks requiring larger limits, we're seeing moderate reductions.
I guess the key point is overall, it's good news for most buyers. There's increased capacity coming in. We're seeing an influx of MGAs. We expect to see some more next year. Terms and conditions probably continue to tighten in certain respects, particularly in respect of PFAS and certain environmental exposures.
But overall, it's good news. Overall capacity's pretty much the same, but there's more choice with more markets. As always, underwriters are increasingly selective, so the better that we can articulate a client's risk management measures, the better result they'll get.
MARIE REITER: So thank you. When we're thinking back to the energy market, the main energy market review in April, have our predictions come true? Has the market evolved in the same way as we thought it would? I think we said upstream we expected rating to continue to soften. George, did that come true?
GEORGE RICHARDSON: Yeah, I think from an upstream perspective, capacity's still at an all-time high. There are a lack of not just market changing losses, but any sizable losses. There is an uptick in attritional losses, but these seem to stay under the radar. They will hurt the smaller insurers more than the bigger ones who have spread.
But we've also talked a lot about relevance, and I guess there's been an increase in the race to be relevant. And usually that's through quoting, through becoming a leader, by helping brokers win new business, by helping keeping clients' terms very competitive.
So yes, we've seen more people giving alternative quotes. The question we always have is, how often does the leader actually change on programs? Because as I alluded to earlier, there is a serious value in stability of leader, whether that's having paid contentious claims in the past, whether that's knowing that you can trust your leader when something a bit out of the ordinary comes up, or whether that's their engineering capability. So yes, we're testing the leader, but I would question, how often do these alternative quotes actually take over leadership?
We've also seen an increase in the focus on facilities. And interestingly, facilities-- a lot of security behind facilities tend to also be the markets who are leading. So as you can imagine, as leaders look to lead and to grow their market share, and their facilities come and push in terms of being modern, fast, follow capacity, it means all those markets in the middle are really, really struggling to maintain signings.
We spend a lot of time having tricky conversations about signings, and that's because a lot of these markets are under pressure on the big accounts. And yes, these markets are doing other things on the more challenging part of the portfolio, and they have to. They have to trade in order to remain relevant. So overall, yes, there's been a massive increase in that race to remain relevant.
MARIE REITER: Thanks, George. That's really interesting. Mike, how about the liability market? You've talked about that dichotomy between the international and the US piece. How do you see that developing from April to where we are now?
MIKE NEWSOM DAVIS: I think we've seen a continued divergence. Funnily enough, actually, when I was writing the piece, a thought came to mind of a famous Victorian novelist, Charles Dickens, which Andrew Brunero will know well. And there was a bit of a theme here, not so much in terms of Scrooge and his epiphany and whether he was going to increase rates or not.
But there's another Dickensian novel, which is called The Tale of Two Cities. And I thought the theme of that were actually the tethered two jurisdictions, which I've talked about in terms of very different experiences and markets going in two different directions. So you've got claims subject to US jurisdiction where the rates are going up, claims subject to international jurisdiction where there's more competition.
So that theme has continued and expanded. I guess the gulf continues to widen. Probably there's some moderation of the rate increases on the US side, but we're still seeing rate increases.
One interesting phenomenon we've seen is we call it-- I guess we call it the liability layer cake, or hollowing in the middle. And the point about that is that with claims inflation, one underwriter quoted that in the old days, his average bodily injury claim probably per person was about $10 million. Now it's gone up to just shy of $100 million.
So what that means is that the primary will always be exposed and risks are priced accordingly, but that your day-to-day claims are starting to erode the first and second layers more often. Whereas in the old days, it was a casualty and considered a cat exposure.
So if you look at a program, the top layers are probably still priced appropriately. The primary there's been a response on in terms of ratings. So actually, that rating tracks exposure. But I would say in terms of a trend, the lower excess layers are arguably underpriced. So I guess we call it a liability layer cake with a hole in the middle.
So where are we coming from on that? I guess the dynamics are that within a program, prices generally gone up for US, generally flattish to going down for international. But depending on the limit you want to buy and where you are at, you'll get a different experience.
So again, we've said that domestically or in the regional markets, there's a lot of competition. So regions, particularly South America and most particularly Australia and Canada, we're seeing the biggest rate reductions because the markets are very strong, very competitive. We've seen some new markets coming in. Particularly for those clients with low limits, there's a lot of competition.
So that trend we identified at the start of the year. We've seen a continuation of that. The question is, where do we see this going in 2026? In summary, I guess we're seeing more of the same, continuation of the trends that we articulated in April and some other issues, I guess, which have come up more recently too.
In terms of probably claims, which we haven't really touched on, there have been quite a few significant energy liability claims in the last year or in the last two or three years, which are starting to materialize. Interestingly, not just in the United States, but we've seen some larger ones in Latin America and in Europe. So underwriters are concerned about potential lack of reserving.
Stephen Catlin was quite outspoken, and he has been about his concerns about a potential black hole for casualty reserving. And we've seen actually one or two markets, one recently pulling out of casualty particularly, or buying adverse development protections to protect them from casualty potential holes. So I think the good news is the market direction is continuing as before. The caveat is that underwriters and commentators remain concerned about the future profitability of the market.
MARIE REITER: Interesting. I mean, picking up on that notion of profitability, be interesting to hear Andrew's take on obviously the losses in your market have accelerated somewhat. How are you looking in the downstream market for profitability, and how does that compare to the trends we identified back in April? Have they materialized as you expected?
ANDREW BRUNERO: Right. From where we were in April, the softening of the market has continued. This has been driven by a few factors. Firstly, it's been markets are chasing for that premium income. They are pushing to hit budgets. And we're seeing that as the year end closes out. We're seeing more and more markets fight for their share, fight for their corner to make sure they hit budget.
And recently, there's been an absolute flurry of tender activity across the globe. No rhyme or reason for it, I don't think. It's just all of a sudden, there's a lot of business coming out to tender. Again, leaders. All the majors, they want their share. They want to maintain their leadership, so they're fighting for that.
And also at the same time, we've got here is with the facilities now taking a foothold. The markets are aware of that. The markets know that there's a new game in town, and that will take some of that share away from the market.
But where we're seeing from the losses is, again, from what Mike said and from the liability side, we're seeing it in the downstream energy. It's quite regionally driven. So if you look at the 13-- I think circa 13 losses, the sizeable ones that are out at the moment, half of that is in the US. The other large remainder of that is in Europe, and there is a sizeable one in Saudi Arabia.
Now, people who write global books, they will be affected by all those losses in some way, shape, or form. But from regional markets, as in the Middle East or Asia, of course they won't be affected by those losses in North America. So you are seeing certain regions being a little bit more aggressive than others, and that is just driving that whole competition.
MARIE REITER: Really interesting. And actually, following on in that same vein, looking forward to 2026, do you see that trend continuing of a divergence between the regional markets versus the more global players? And what other predictions would you make for how your market is going to develop into '26?
ANDREW BRUNERO: 2026. That is the big question. A lot of it will be dependent on the treaties. Markets at the moment, they're all doing the roadshows. They're all going through the process. They're all talking to their treaty reinsurers, and this is what we're waiting for.
So in the next sort of six weeks or so, you'll see, what is the first quarter going to be like in 2026? Yes, there will still be reductions. Whether you're going to start getting the reductions then that we're seeing now, who knows? But a lot of that will be driven by the outcome of people's treaties and renewals.
MARIE REITER: Do you have any predictions for how you've seen in the early conversations, how you've seen those treaties go?
ANDREW BRUNERO: No, nothing at the moment. There is one major market. They are the benchmark. Their treaties are 112. That's what we all wait for. Then after that, everybody will fall in. There's a lot of treaties at 11, then it's 14, and so on.
MARIE REITER: So watch this space for the time being on the treaty side then.
ANDREW BRUNERO: Certainly watch this space. It'll be interesting to see what comes out of it between now and the year end.
MARIE REITER: Good. Now, George, how about if you look into your crystal ball into 2026, where do you see the upstream market going? Do reductions continue at the rate that they currently are at?
GEORGE RICHARDSON: Yeah. I mean, look, a lot of friendly underwriters and us, we have chats and they go, oh, what do you think's going to happen next year? And the reality is there is too much capacity and there aren't any market changing losses. So nothing is going to drive the pricing up from that perspective, unless, of course, there's suddenly a massive market-changing event.
Reinsurance treaties, our market are at pains to tell us when their reinsurance treaty goes up and how that must be passed on to the client. So obviously, if the reverse is to happen and they get a saving, that'll only fuel us looking for a saving for our clients.
We're not naive enough to think that the market won't harden. It's not if. It is very much when. And that is a view shared by all sensible brokers, I'd like to think, and the market themselves. So it feels very much like the market are nervous. They're concerned. But they're trying to ride out the current dynamics of the market and make sure that they're there in a year's time, in 18 months to take advantage of when the market does turn.
I think Upstream-- I think we're all aware that Upstream over the last 10 years has been a very profitable class of business. The margin in it, though, has very much gone down, particularly in the last couple of years. We talk a lot about rating adequacy. We talk a lot about cost of capital. We talk a lot about reserves. We talk a lot about construction, and those who maybe have got a little bit overexcited about the constructions landing on their desk, maybe thinking about ambitious growth target, maybe thinking about management pressure, maybe has kind of pushed line size to maybe a less sensible percentage.
Those markets could be in a bit more pain than others. As we all know, construction losses are more long tail. And when a project ramps up over the years, the losses typically materialize later into the project.
So no one knows what's going to happen next year, but the reductions will continue. And the reductions are not massive reductions across the whole portfolio. We've got to be clear about that. There are often some headline figures out there, which kind of make it seem like everything's going at a crazy percentage reduction. That's not the case. Some business is getting bigger reductions, some are not, depending on what it is, because it's a very broad portfolio in Upstream, as we know, whether it's construction, a contractor, an operator, a land rig, an offshore drilling well. They all get treated differently depending on the competitive dynamics.
But generally, the book, when we talk to markets, is tracking between five and 10 off. Of course, if something was a massive reduction, it's often new business, so it wouldn't be part of that calculation. But we cannot see at this stage why next year would be any less soft than it is now, which is not what underwriters want to hear, but it's obviously good news for clients.
MARIE REITER: Excellent. How about liabilities, Mike? Do you see that trend continuing of the US going up and the international piece starting to fall away in rate?
MIKE NEWSOM DAVIS: Good question, Marie. I mean, to continue the Dickensian theme, there are two titles. One is Hard Times. One is Great Expectations. So which of those do we see the market going to? I guess first of all, just to remind ourselves, casualty liability is long tail. So we tend to get excited if there's a small, single-digit uptick or downtick, whereas obviously property, upstream, downstream, we get the bigger variations. Because capacity takes longer to come in and go out and losses take longer to materialize, so any trend we see is more moderated.
In short, I think we believe that we'll see a continuation of what we've had already. Social inflation is not going away, and it continues to spread throughout the world. So we will see the gradual exhibition of that through probably all jurisdictions to a greater or lesser extent. Certainly in the US, that remains a big issue.
Casualty, there's a concern over reserving. There's concern over social inflation. There's a concern over results for certain classes, particularly US auto and the energy side and some other classes. So we see probably the rates in casualty continuing to be quite challenging with upticks.
I suspect we'll probably start to see a three-speed market, actually, which is interesting. So there's the US casualty and the US jurisdictional exposed risks, which are probably the most challenging.
On the far end of the other scale, we're seeing local jurisdictions and local territories where there's lots of domestic capacity with quite aggressive income targets, particularly as we've seen in Australia. Also to an extent in Canada and certain parts of the world. So to a certain extent, Latin America too where we see probably the most generous rate reductions, albeit generally single digit.
I guess the pig in the middle is Europe where there's increasing concern over losses. I think we need to be cognizant of some of the EU regulations which are changing the legal landscape. There's an EU products directive and there's an EU directive on representative actions for the protection of the collective interests of consumers. Long word for a Christmas title.
But what that means is there's worry about social inflation in Europe, the increasing chances of litigation. And there's an easing of the burden of proof, which makes it easier to bring product liability claims.
So as a result, I think probably we're looking at a potential three-speed market in 2026. US continuing to be challenging with some rate increases, certain territories where the domestic markets are competitive with more generous rate reductions and flat to low, single-digit on those middle areas. So generally, good news. Directionally, we're still good for the buyer.
I guess the question will be when the casualty tail catches up with its head. And will there be any brakes put on just to allow for concerns about reserving? Frankly, I don't see that Q1, Q2 next year. Treaties are looking good so far, but it's to be seen. So probably a measured continuation of what we're seeing so far in the short term next year.
MARIE REITER: So thank you, Mike. And I think just to close us out, I'd love to hear from all three of you. What are your top tips for buyers going into 2026? What can they do to help us get them the best possible deal out of your respective markets? And then maybe let's start with George this time.
GEORGE RICHARDSON: Yeah, thanks. It's a good question, and very important. I mean, I mentioned it earlier about testing the leader. We need competitive dynamics in order for us to properly test the leader. So if it's an account with loads of claims or in a part of the world that has a restricted market that can write there, or there's a big capacity crunch, it is very hard to test the leader. But a lot of the business that we place, you can very much test the leader.
But we are also big advocates of relationships with the leader. They are the ones who pay the claims. They are the ones who turn around all the necessary service during the year, which is very, very important to us and to the client. And a lot of the established leaders, they have engineering departments, they have wording specialists, and they have proper upstream claims expertise.
So if you are going to test your leader, you need to be testing your leader, provided you've got a respectful leader, with another respectful leader. Because there is no point in buying an insurance policy with an insurer who does not have upstream claims capabilities. Because in the event of a claim, if it wasn't to be paid, you're obviously going to be in a way worse financial position than if you've just saved a bit of money at inception.
So we're big fans of relationships, although we think that they need to be tested in terms of the leader. We also would say that in the long run, those clients who do maintain relationships with the same carriers do tend to do better in terms of price. So when the market does harden-- and we're expecting it to harden at some point, once capacity has been withdrawn for whatever reason that is-- we would expect those long-standing relationships to pay dividends.
If you go with a market that's done a crazy price and is struggling to get support, there's going to be a lot of turmoil in that process of trying to get it placed behind crazy price and potentially a new leader that's not quite ready to lead that account. They may not have the engineering capabilities. They may not have claims expertise. And will they be here next year? Which is a really important question that clients should be asking. So that's kind of the dynamic in terms of leading.
And the final thing I would say it is generally a soft market. And therefore, we should be having more conversations around wordings, more conversations around coverage. Can we improve things? Can we look at the retentions and get into the nitty gritty of the wording and see if there's anything that we can tweak? Because now, logic would suggest, would be a good time to go in and talk not just about price, but some of the broader coverage that we're providing.
MARIE REITER: And absolutely, I think that's always the sign that we're approaching near the bottom of the soft market, is when we start talking about coverage, about deductibles, about waiting periods.
GEORGE RICHARDSON: We've been talking about the bottom for a long time, bottom of the market. But yes, it feels like it's nearer than ever, but we continue to keep going in kind of state we're in.
MARIE REITER: Absolutely. How about you, Mike? What advice do you have for buyers in the liability market?
MIKE NEWSOM DAVIS: Very much like George, I think-- I mean, there are three key issues for renewal. It's about price, it's about coverage, and it's about security. Where the rubber hits the road-- and we've had this interesting pleasure of having dealt with quite a few major claims-- insurance is a cost, right up to the moment when you're recovering for some major claims.
So I would say, be careful of short-term gains, but losing your long-term relationships and security. You can pursue two approaches, and one is a sort of scorched Earth policy where you get the lowest possible price from any market, versus a reasoned and rational renewal price where you get a fair renewal price, which in this market often is reduction, but with the reassurance of an expert quality leader. And that is increasingly important.
So as George has articulated, you absolutely need to test your leaders, test your market, get options. But it's about getting the broadest cover, maintaining the broadest cover, getting a fair price. And it may well be a reduction, but it's a fair and reasonable price with markets that are going to give you long-term security.
And markets do preach longevity, as do clients, and it's nice to see that it happens. What we've found with some of our larger clients is sometimes they don't get the biggest discount in the soft market, but actually then, they don't get the largest increases in the hard market.
And a lot of risk managers are looking for predictability and stability. We do a lot of benchmarking in terms of pricing and coverage to make sure that we get the best for our clients, and a lot of risk managers want to know that they're getting the best possible deal, but a fair deal for the right markets. So how do you achieve that?
I think we've got a range of markets globally we can go to. What helps us every time is the relationship with the markets and a visit with the risk manager to the market where he can articulate his risk management proposition, what the client is doing, what risk management exposures they're looking at, if they may be reducing their CapEx due to margin concerns, but articulating the fact that they're still spending the same amount of time on maintenance.
So the details behind the headlines are really important. And a lot of it is about trust and conviction and how you project your company to the market so that you can continue with a strong relationship.
MARIE REITER: Excellent. Thank you. And finally, last but not least, over to Andrew for his advice on the downstream market.
ANDREW BRUNERO: Thank you, Marie. Be prepared. When you're going to be preparing for the market, it's about up-to-date information. Valuations, engineering, two very, very big key things that the downstream market look at. And pair that up with benchmarking, as Michael said. Benchmarking's a very important thing. All risk managers want to know they're getting the best deal, the best coverage, the best rates.
And then you throw into the mix in that with analytics as well. There's the proof. And if we can prove it to the market, that's what you go to. As George said, test your leader. People need to be tested just to keep everybody honest. The end of the day, relationships are valued, and they do go a long way. And also, the last thing I would say would be time. The longer lead up you have, there's no doubt about it, the better deal you will get from the market.
MARIE REITER: Thank you so much. I think that was really sound advice from all three of you. And thank you all so much for taking the time today to go and share your expertise with all of our listeners. And yes, thank you.
GEORGE RICHARDSON: Thank you, Marie. Thanks for organizing.
MIKE NEWSOM DAVIS: It's been a pleasure. Thank you, Marie.
ANDREW BRUNERO: Thank you very much. Thank you, Marie.
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