Beneath the surface: Underwriting undercurrents in a softening power liability market

Off the back of a further 12 months of relatively low loss activity, sustained insurer growth targets and increasing market capacity, liability conditions are favorable for sought-after business. But the reality is multi-faceted, and the ultimate focus remains on rate adequacy rather than change.

Key takeaways:

1. The international power liability market is softening on the surface, with Lloyd’s a third consecutive year of underwriting profit, but changing climate conditions and decarbonization are impacting insurer appetite.
2. Most of the movement in the softening market relates to price rather than coverage, with underwriters holding firm on wordings related to PFAS, climate and pure financial loss and failure to supply.

International liability: A favorable but segmented market

The international liability market in London continues to be favorable for buyers, with a small uptick in capacity and a continuation of softening market conditions, leading to greater competition and downward pressure on rates.

Earlier in 2025, Lloyd’s of London announced a third consecutive year of underwriting profit for casualty as a class of business . The results point to a sustained period of profitability, underpinned by a buoyant underwriting environment, benign loss activity and additional market capacity, which has led to further softening of the market.

While on the surface, the international liability market appears to be signaling a positive trajectory, the outlook for the power sector is more nuanced. This is best viewed through three lenses:

1. Power generation: Ample liability capacity exists for most placements, with in excess of $1 billion available. Most programs can be placed multiple times over, meaning that insurers are increasingly willing to challenge technical pricing, particularly on risks that have had no/minimal losses and are well-perceived in the market. Default rate change is typically within the flat to -5% bracket but can be even greater depending on the characteristics of the risk.
2. Transmission and distribution (T&D): Greater scrutiny and increased information requirements continue to be applied, particularly for placements exposed to wildfire/bushfire. Although placements with large losses can be subject to increases, the comparatively restricted pool of capacity, coupled with a more data-driven approach to minimum rates, is balanced by increasing competition from local and London markets meaning that underwriters are typically defaulting to flat as a starting point for loss-free risks.
3. Coal: Capacity for liability risks that are predominantly related to coal remains significantly lower than for other power risks, particularly where the risk is new to the market. The lack of capacity and reduced competition compared to generation and T&D can lead to opportunistic pricing, however, as program limits have recalibrated in recent years, the default for renewals is typically flat. This said, the outcome can vary significantly depending on the location of risk.

The impact of a changing climate and decarbonization on liability exposures

Against the backdrop of  complex and interconnected risk factors, two key evolving exposures are impacting the international liability market for power:

Changing climatic conditions:

Underwriters are paying increasing attention to the uncertainty and increased frequency of extreme weather events:

• Wildfire/bushfire exposures are spreading, putting Greece, Spain, Portugal, Croatia, Italy, Turkey and southern France on underwriters’ radars
• Cyclones such as cyclone Alfred in Brisbane earlier this year are elevating failure to supply exposures
• Floods and droughts are increasing frequency and type of failures such as overtopping, as highlighted by the partial Braskereidfoss Dam collapse in Norway

Power sector decarbonization: The risk of reduced grid inertia

In the pursuit of decarbonization and net zero goals, many countries are pushing their national grids to work in ways that they were not designed to operate, and which are outside the stable inertia limits. This could result in increased frequency fluctuations, heightening the risk of grid instability and the subsequent possibility of a rise in liability claims, particularly when considering pure financial loss and failure to supply exposures.

Consistent coverage: Underwriters are holding firm

The international liability market for the power sector has showed signs of softening, but the majority of movement relates to price rather than coverage, with underwriters holding firm on core areas of policy wordings.

Per- and polyfluoroalkyl substances (PFAS): Exclusions in reinsurance treaties, and subsequently some market standard wordings, has led to a widespread and consistent application of PFAS exclusions typically being applied by default.

Climate change: The application of a climate change exclusion, often although not exclusively on the market standard LMA5570 form, is becoming increasingly prevalent.

Pure financial loss and failure to supply: The ability to obtain pure financial loss cover resulting from failure to supply remains under more underwriting scrutiny. This includes details around third-party contractual exposures and supply agreements and can attract significant additional premium.

Liability insurance buyers have cause to be optimistic

As new capacity continues to enter the market, particularly for generation risks, increased competition and further softening of market conditions is expected. Rates for T&D and coal-exposed risks are likely to stay steadier.

For risks with adequate pricing and clean loss histories, some markets may consider increasing line sizes and/or offering long-term agreements which typically incorporate a small rate reduction in the second year.

The market may see a rise in captive deployment for risks that are heavily exposed to coal as buyers seek to avoid opportunistic capacity and reduce potential fluctuation in capacity demonstrated in recent years.

Headline trends are generally positive, particularly for power generation, but the undercurrent of continued social inflation, concerns around loss reserving and prior year loss deterioration continue to remain a balancing factor for the international liability market.

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