Upstream energy conditions hang in the balance

The continued surplus capacity is increasing competition for sought-after business, but less profitable lines remain challenged and any significant loss activity could put the brakes on further meaningful softening.

At a glance

• Loss activity has been benign for 2024 so far
• Maintaining profitability is a core focus for some insurers as we head toward 2025
• The insurer appetite gulf between good and less favoured risks in the portfolio is just as wide as reported in the Energy Market Review in April
• There’s fierce competition for clean operational risks with large premiums
• Construction risks – particularly subsea – remain at the bottom of the pile after sustained loss activity
• Capacity supply is outstripping demand, but not for all risks
• As available leadership options in the upstream market increase, testing the competitiveness of existing leaders and placement strategies will be a focus

Insurers are taking tentative steps forward

Loss activity for the upstream energy sector as a whole has been benign in 2024 so far, with an absence of both headline and attritional losses. But deterioration of previous years of loss activity across the entire upstream energy sector is keeping a rein on any wholesale reductions in rates.

With financial targets looming, maintaining profitability is a core focus for some insurers as we head toward 2025. Some markets are chasing premium and market share, putting even more downward pressure on rates. But the insurer appetite gulf between good and less favoured risks in the portfolio is just as wide as reported in the Energy Market Review in April, with fierce competition for clean operational risks with large premiums and construction risks – particularly subsea – remaining at the bottom of the pile after sustained loss activity.

Capacity supply is outstripping demand, but not for all risks

For the most sought-after placements, the continued extreme oversupply of capacity puts increasing pressure on smaller insurers, especially those who only write a narrow book of upstream business. This oversupply of capacity is further exacerbated by new entrants into the upstream market during 2024 and we anticipate that several existing insurers will be looking to increase their capacity again in 2025. However, all this capacity is competing for the same small pool of top-quality risks.

“As insurers jostle to deploy their capacity and meet their targets by securing good risks for their portfolio, competitive pressures are evolving, but not to the extent where underwriters have carte blanche to chase premium at any cost.” Paul Braddock, Head of Upstream GB, Natural Resources Global Line of Business, WTW

In the immediate future, markets are likely to remain fractured with some insurers firmly in growth mode, and others not so premium-hungry.

Don’t fall foul of the broker pricing frenzy

The mood in the market has changed. With a number of large placements being tendered during 2024, a broker pricing frenzy has emerged. As these tenders were often conducted without market involvement, brokers have quoted increasingly unsupportable prices, some of which proved subsequently unachievable when later presented to the market.

This trend has somewhat diluted the analytical approach taken by responsible brokers. Underwriters hold the risk. And sophisticated analytical tools and underwriting expertise should always be the foundation of competitive pricing. As available leadership options in the upstream market increase, testing the competitiveness of existing leaders and placement strategies becomes an essential tool for oil and gas companies looking to optimize their insurance pricing.

Differentiating the business from other upstream sector players continues to be an important factor in securing optimal rates as appetite for top-quality risks continues to grow. To achieve the best available terms, brokers will be balancing local and international markets to test their winning prices.

Remaining true to your commercial priorities will be critical in moving through uncertainty with confidence. With a firm grasp on your organization’s risk appetite, your brokers will be in a position to leverage local and international markets and test the products available to deliver optimal results.

Download the full report to find out what 2025 holds for the upstream energy market – from M&A to MGAs and beyond, and how to prepare.