Insurance Marketplace Realities 2025 Spring Update – Energy

Losses in the refining sector in Q1 2025 is yielding underwriter questions and has impacted the pace of softening

• Notable loss events have occurred in the refining sector in January (Germany) and February (California) of 2025.
• The circumstances resulting in these two events and details of events in years past are leading to underwriter questions around maintenance, turnaround and contractor utilization practices.
• These two loss events could total more than $1.5 billion in losses to the market (approximately $4 billion in downstream market premium).
• Significant claims activity occurring early in the year has given underwriters reason to look to employ increased underwriting discipline and slow the pace of rate reduction in the market.
• With three quarters still to come in 2025 and Atlantic named windstorm season on the horizon, insurers are concerned about 2025 portfolio profitability.

New capacity into the London market paired with interest in increased lines from many continues to foster competition and a supply/demand imbalance

• A well-known Lloyd’s syndicate, which had not previously underwritten a significant downstream energy book has significantly increased their offering in the sector following senior-level changes.
• Following a wildly profitable 2024, GWP, goals for 2025 call for growth for many insurers.
• As rates decline and competition increases for participation on programs, GWP goals must be met with new business premiums or increased shares on incumbent businesses.
• Robust marketing efforts continue to result in significant oversubscription of most programs.
• Previously challenged placements are now seeing increased interest as insurers look to replace premiums lost because of lost business or premium declines due to rate reductions'.

The dynamic regulatory environment in the United States following changes in the federal government is uncovering challenging questions for insureds

• Tariff plans of the federal government remain dynamic, leading to questions regarding feedstock, raw materials, sparing, long-lead-time equipment and potential replacement cost escalation.
• Anticipated regulatory and tax code changes are challenging the profitability of the businesses of some insureds who rely on governmental support or specific regulations to profit.
• These changes and uncertainty around possible future policy shifts are impacting growth project viability, resulting in project pauses, concerns around business interruption (BI) values and operational viability concerns of some insured assets.
• The pace of renewable refining conversion projects has slowed due to hurdles ranging from operational costs, feedstock availability and tax code uncertainty.
• Conversion projects have also received some scrutiny from the market due to technology concerns and events occurring during testing and commissioning of new units.
• With margins in refining down and the possibility of regulatory changes at the state and federal level, insurers anticipate that the refining portfolio will continue to decline as insureds choose to idle or shut down plants or undergo conversions.

While valuation accuracy remains a market talking point, pressure for significant change has subsided

• Market-trusted indices for property damage values are no longer recommending significant increases, with some showing flat or even small reductions in recommended inflation rates.
• With competition heating up and rates improving in favor of buyers, insurers are diverting their attention away from value adequacy if a sound, repeatable methodology has been implemented.
• The challenging tariff conversation, particularly as it relates to property replacement cost values and limit adequacy, could intensify the values conversation again.
• Insureds should monitor the impacts of tariffs on critical items and conduct ongoing conversations with brokers to ensure no lasting tariff impacts warrant a need for program restructuring or value adjustments.

In a softening market, improvement in terms and conditions can be had in supplement to pricing improvements

• Non-concurrency in terms and conditions, if applicable, should be an area of focus for brokers along with price improvements during a softening cycle like the current.
• As insurers chase increases in share, improvements in terms can become important points of negotiation and possible differentiators between insurers offering competing quotes.
• Long-term agreements (LTAs) are currently in vogue again as insurers look to lock in GWP and buyers seek future rating stability.
• While LTA clauses are often viewed to be easily broken from a legal perspective, it’s typically in the best interest of both parties to honor the agreement unless one of the events triggering the LTA cancellation should occur.
• Putting a portion of a program on an LTA and leaving the rest to remain floating annually can represent an efficient way to create a hedge against future changes in the pricing environment and lock in capacity.

Environmental, social and governance (ESG) has been significantly deemphasized, but remains in scope for a select group

• Following on trends of the last 12+ months, ESG conversations continue to dwindle as insurers feel less pressure from key stakeholders.
• The focus has shifted to insured operational success and safety as underwriters aim to tailor books for profits rather than ESG-driven metrics.
• ESG continues to be an important factor in the decision-making process for a small group of well-known Continental European insurers, but the focus of the restrictions remains primarily on coal and upstream exploration and production (including oil sands, arctic exposures).

Auto liability claims remain a concern across all sectors, impacting lead umbrella pricing and capacity again in 2025

• Despite nine consecutive years of rate increases for primary auto liability losses continue to outpace rate increases each year.
• Jurisdictions that used to be considered neutral are now becoming plaintiff-friendly venues as well in places like the Permian Basin where activity is concentrated, and frequency of losses is high and areas such as Louisiana and south Texas continue to be challenging.
• Clients with heavy fleets will face increased scrutiny as larger awards and settlements are impacting lead umbrella limits and pricing due to limits vulnerability.
• Excess carriers will continue to focus on hired auto liability exposures and contractual risk mitigation practices and third-party limits sought.

Oilfield services companies with losses or heavy auto exposure are experiencing an extremely challenging marketplace in 2025

• The oilfield services segment continues to see the largest uptick in general liability/excess liability claims due to an increase in severity in both judgments and settlements for workplace injury lawsuits.
• “Action-over” lawsuits appear to be increasing from both a frequency standpoint and settlements continue to be paid by lead umbrella policies, impacting limits availability from certain carriers.
• Clients with heavy fleets will face increased scrutiny as larger awards and settlements are impacting lead umbrella limits and pricing due to limits vulnerability.
• Lead umbrella capacity is quickly shrinking and the market is quickly hardening for many companies within this sector, especially those with larger fleets or large losses.

Overall capacity should remain stable in 2025 for most sectors

• Despite the concerning increase in litigated claims in all sectors, liability capacity remains stable year-over-year.
• This should mitigate any concerning rate increases for clients with profitable loss histories in all other (non OFS) segments.
• Capacity remains steady in the U.S., London and Bermudian marketplaces.
• It’s critical that clients highlight auto-safety programs/driver hiring criteria, contractor limits sought and direct communication with incumbent liability markets is crucial.
• We suspect that modest excess liability rate increases will lessen as the year continues.