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Q3 Global Marketplace Insights – Natural Resources

2023 Market Insights

October 17, 2023

Marie Reiter, Head of Global Broking Strategy, Natural Resources, discusses the most recent developments in the various insurance markets for the key Natural Resources sectors.
Natural Resources market trends

Hear from our experts and learn more about the latest insurance marketplace trends


Natural Resources market trends

Welcome to WTW's Global Marketplace Insights series, where our experts bring you the latest risk and insurance perspectives.

Hi, I'm Marie Reiter and I lead Global Broking Strategy within the Natural Resources global line of business here at WTW.

Within the Natural Resources business, we cover a number of key sectors in upstream and downstream energy, power, mining and metals and renewables.

As the key 1/1 insurance renewal season starts to swiftly come into focus, I will be discussing the prevailing market conditions in these sectors to give buyers a flavor of what to expect in the upcoming renewals.

Firstly, the upstream energy market Capacity and coverage remains stable following some minor adjustments earlier in the year.

The markets continue to focus on asset valuations within the current inflationary environment and we're increasingly seeing more disadvantageous pricing for clients who the market deems not to have given adequate consideration to asset value inflation.

Over the last six months, pricing has softened slightly compared to the beginning of the year when markets were reading from punitive reinsurance renewals.

And we now see the most desirable accounts renewing at flat rates or minor increases of up to 2.5%.

But smaller placements with less premium income are seen rate rises of up to 5%.

However, less desirable placements such as offshore construction and loss affected risks continue to see larger increases in premium.

A recent sizable platform loss in Latin America that is currently estimated at circa $750 million has yet to affect the rating environment.

But we expect this to play a role coming into the one one renewal season as loss estimates should become more concrete by then.

Moving on to the downstream energy market, in 2023, the market has seen only a couple major losses so far.

However, 2022 was a very different story altogether and loss deterioration has had a meaningful effect on the 2022 loss record, where we now see over $5.5 billion of total insurable losses to date for the 2022 year alone compared to a premium pool of approximately $2.5 billion.

These losses span all major downstream occupancies and geographies and will likely result in historic portfolio losses for many insurers.

The market's focus on ESG continues, but we have observed some retrenchment in insurers positions following the withdrawal of many from the NZIA and also the continued pressure particularly in the US.

As a result, the market is proceeding with some caution in firming up their ESG stance and that's still no market consensus on this issue.

From a pricing perspective, the three-tiered market continues with well-engineered clean and well run risks renewing between a small reduction and increases of up to 5%.

Other clean placements with lower premium income are seeing rises between 5 and 7 1/2%, whilst loss affected programs face rate increases of 10% or more.

As we move towards the end of the year, most downstream insurers have already made their budgets which may well lead to increased risk selection.

However, there will also be those carriers who will seek to continue writing new business to exceed their budgets and help pay for those 2022 losses.

In the power market, the traditional market cycle has come to a halt as we see ongoing hardening of rates across the power sector.

Plus there was a brief interlude of slight softening for tier one business in late 2022.

This trend has once again reversed, and we now find ourselves three years into a hardening cycle with little sign of the momentum abating.

On the loss front, we're seeing increased frequency and severity of natural catastrophe related losses including in some unexpected areas.

For example, in New Zealand there was widespread flooding following Cyclone Gabrielle in February and flood has historically not been peril that was heavily rated for in New Zealand.

Whilst this is just one example, we're seeing the market take a closer look at how they're modelling and rating for Nat-Cat risk as a whole.

As Nat-Cat aggregate is often shared by multiple lines of business, insurers are actively looking to divert their available aggregate to the sector where they're obtaining the biggest returns, and this may well lead to a reduction of available Nat-Cat capacity in the power market.

Following another poor year for the North American power account, we're seeing more insurers looking to diversify their books and seeking to write international business.

This is even the case for the historically US heavy Lloyds Power Syndicates.

Finally, from a rating perspective, the market remains trivocated with tier one well engineered clean and well-run risks receiving small rate increases of 2 1/2 to 5%.

Whilst clean but Cat exposed programs are seeing 5 to 10% rises, loss affected programs are liable to see at least a 10% increase.

We've just recently published our power market review, which gives a more detailed overview of the issues facing this sector and you can find this on the WTW Natural Resources Internet site.

Now moving on to look at mining of metals.

The global insurance market capacity for mining is stable at around $1.25 billion U.S. per risk of course.
However, we are seeing a notable flight of quality with insurers looking to deploy disproportionately more capacity on the very best business.

Despite this, we still see hardening of rates right across the market with even tier one clients with exceptional loss records and risk management longstanding positive market relationships as well as significant scale on premium volume continuing to pay rate rises of approximately 5%.

Tier 2 clients are seeing rate increases of up to 10% and loss affected programs even larger at 15 to 20%.

Some customers are facing a double hit as both pricing and claims recovery coming under pressure with insurers seeking to impose average co-insurance or value limitation provisions where buyers have been unable to provide recent independent asset valuations and, in some cases, even arbitrarily inflating their premiums to reflect perceived under insurance.

This highlights the ongoing importance of ensuring ingoing insurance values are accurate and independently vilified.

Strong commodity prices are impacting business interruption projections across the mining sector and can have a disproportionate effect on composite rates.

It's crucial for buyers to evidence, a strong maintenance regime and critical spares policy to assure underwriters of their superior risk quality and to mitigate any effects on pricing.

In the renewable sector, there's a strong appetite for renewables business from insurers, particularly those looking to support the energy transition.

However, there's still only limited appetite from markets to lead this business.

Insurers are increasingly focusing on technical underwriting and the number of carriers have recently employed specialized renewables engineers within the underwriting teams. Essentially, to further their technical capabilities in this field.

And this could lead to a strengthening of the leadership options in the near future.

Markets continue to focus on substantial technical submissions and strong partnership with their core client base.

For the most favored clients, we've seen these relationships being utilized to achieve between a 5% and 10% discount from the standard market position.

This is quite a meaningful difference considering rates in the sector are still increasing between 10% and 15% and it highlights the benefits of substantive market engagement.

From a coverage point of view, there is a renewed focus amongst insurers and the LMA to strengthen the effect of the serial loss clause, which seeks the limit claims from multiple losses of a similar nature.

By introducing a sliding scale of indemnification, markets are trying to accelerate the gradient with which recovery falls away as well as bringing business interruption coverage within the scope of this provision.

We are of course resisting the strengthening of such a punitive provision which could curtail clients claims recovery especially on the BI component where clients do not have the ability to fall back onto manufacturers warranties to cover any shortfall.

Until now we discussed the property market conditions for the Natural Resources occupancies.

Let's now look briefly at the Liability position.

The total realistically available liability market capacity continues to sit just above $1 billion and where program limits can be placed multiple times over, surplus capacity is driving a more competitive rating environment than we've experienced in recent years. Particularly as we see insurers shifting their focus from rate movement to rate adequacy.

Insurers are still generally seeking to apply premium increases, which is a position predominantly underpinned by the inflationary pressures we've seen both social and economic.

This leads to the average renewal being a mid-single digit increase prior to any adjustments made for exposure changes, losses or attachment point movements.

However, whilst insurers continue to push for rate increases, the momentum has moderated somewhat as rate changes are increasingly being considered on a case-by-case basis in view of the overall risk quality and rating adequacy with some insurers even considering flat renewals or discounts on accounts that they're keen to continue participating on.

In conclusion, whilst most of the markets across our Natural Resources occupancies are still looking for rate rises, albeit more moderate than earlier in the year, insurers are displaying a strong desire to increase their participation on the best placements which should give clients a glimmer of hope.

It will be those clients who openly engage with the market and can articulate how the operations and risk management philosophy differentiate their placement and who are able to substantiate the risk quality for in depth engineering that will be able to achieve the most favorable terms in the upcoming renewals.

I hope this quarter's insights have been helpful and if you have any questions or would like more detail on any of these topics, please do reach out to us.

Thank you.


Marie Reiter
Head of Global Broking Strategy, Natural Resources
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