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Survey Report

Insurance Marketplace Realities 2022 Spring Update – Energy

April 7, 2022

Positive factors continue to limit the hardening market dynamic in upstream and downstream energy.
Rate predictions: Energy
  Trend Range
Downstream property  
Favored programs Neutral increase (yellow line, purple triangle pointing up) Flat to +2.5% (small reductions for the top risks)
Technical rating adequacy yet to be achieved Increase (Purple triangle pointing up) +10% to +12.5%
Upstream property  
Offshore fixed assets Neutral increase (yellow line, purple triangle pointing up) Flat to +2.5%
Offshore contractors Increase (Purple triangle pointing up) +2.5% to +5%
Onshore contractors and smaller E&P programs Increase (Purple triangle pointing up) +2.5% to +5%
Midstream and offshore construction Increase (Purple triangle pointing up) +5% to +7.5%

Key takeaway

Downstream: While buyers by no means enjoy a soft market yet, the very best programs have now broken the no-reductions barrier.

Upstream: The hardening dynamic continues to flatten, but concerns over reduced exploration and production (E&P) activity and lack of market leadership alternatives are generally preventing actual rating reductions.


Positive factors are now outweighing the negative for buyers in this market, with continued insurer profitability and increased capacity.

  • An additional $500 million of realistic market capacity is now available for North American risks.
  • The premium pool has also increased, due primarily to increased oil and gas prices and revised asset valuations following the easing of pandemic conditions in key regions.
  • The loss record in this sector continues to be moderate, despite several major natural catastrophe losses this year.
  • Downstream underwriters are now faced with additional pressure from their management to increase premium income throughput.
  • The leadership options in this sector are beginning to increase, as more insurers are prepared to offer their own terms and conditions.
  • The market’s increased enthusiasm for this class has allowed brokers to align individual insurer contributions to programs more effectively, thereby streamlining the placement process and driving improved terms and conditions.

However, some negative factors will continue to ensure that this is by no means yet a truly soft market.

  • There is still no major threat from fresh insurance capital to the positions currently held by the established market leaders. This is preventing further competitive pressure.
  • Underwriters are sticking firmly to the policy wordings and clauses generated by the previous hard market, thereby maintaining generally narrower insurance cover than what they offered in the past.
  • Insurers are becoming increasingly focused on environmental, social and governance (ESG) issues, although no consensus has yet emerged as to how the market will react to varying ESG profiles in the future.
  • Insurers are focusing on the accuracy of asset and business interruption values, a trend that has accentuated as commodity prices have increased and the pandemic has eased.
  • For those insurers writing North American named windstorm, earthquake, flood, etc., softening pressures are less likely to apply. Rating increases should be expected for this part of the downstream portfolio.
  • Management scrutiny of downstream portfolios continues, which will act as a brake on future softening.

Insurers continue to focus on tightening terms and conditions.

  • The new market clause LMA 5515 factors in the maximum percentage of the margin of error between actual and declared values, as well as any premium adjustments. In view of the recent increases in commodity prices, buyers must keep values up to date and accurate if the full quantum of future business interruption claims are to be paid.
  • Insurers are also considering implementing an end-of-life clause, which would stipulate that insurers will only pay out on an ACV rather than RCV basis if there is a total loss of a facility that will not be replaced in kind.

There are now three tiers to this market.

  • Tier One consists of well-engineered and perceived “good,” clean, well-run risks — insurers have received sufficient payback during the last two years to enable them to offer reductions of up to 5%.
  • Tier Two consists of programs that are still not at the right benchmarked rating and still require corrective treatment with upper single-digit rating increases.
  • Tier Three consists of loss-affected programs where rating increases of between 10% and 12.5% are still being applied.


Positive factors are flattening the previous hardening market dynamic, in part due to an exceptional loss record.

  • Capacity has reached a new record with no sign of any withdrawals; realistic capacity now stands at some $7.25 billion for the most attractive programs.
  • $100+ per barrel oil will lead to some increased activity and higher loss of production income (LOPI) values, generating some additional premium income to the market.
  • Most insurers are looking to increase their line sizes and generate additional premium income in 2022, particularly from the most sought-after business.
  • January 1 reinsurance cost increases were more modest than anticipated, while Lloyd’s overall H1 results have shown a marked improvement over this time last year.
  • The overall benign loss record and profitability have been maintained — for now.

However, several negative factors are preventing any genuine market softening.

  • Insurers worry over significant incurred but still unquantified losses — for example, a major Norwegian LNG plant explosion in 2019, for which the claim adjustment has yet to be resolved. There have also been various offshore construction and control-of-well losses.
  • There has been a recent withdrawal of capacity for Gulf of Mexico windstorm business, with prices expected to rise during 2022.
  • Premium income from the contractor portfolio has been particularly impacted by COVID-19 and the new underwriting focus on ESG criteria. This income is unlikely to return to the market as the green energy transition accelerates.
  • The insurer leadership panel remains basically restricted, with limited opportunities to secure competitive terms from alternative markets. Market discipline remains strong, with insurers unwilling to challenge the existing status quo.
  • There is still a significant degree of management/Lloyd’s scrutiny of major upstream programs and a consequent pressure to adhere to established underwriting philosophies.

Insurers’ increased focus on ESG credentials is a worrying issue for buyers, as the long-term capacity provision implications remain uncertain.

  • The Lloyd’s Joint Rig Committee has now produced a standard London market ESG questionnaire.
  • Insurers are keen to underwrite this class and simultaneously maintain their own ESG credentials.
  • ESG issues are not materially affecting most programs yet but will become more of a focus in the long term.

As in downstream, a three-tier market has now developed.

  • Tier One consists of major E&P and offshore contractor programs featuring significant premium income where flat to +5% rating increases are being negotiated.
  • Tier Two consists of onshore contractor and medium sized E&P business where increases range between 2.5% and 7.5%.
  • Tier Three consists of offshore construction, midstream and loss-impacted business, which generally attracts increases between 5% and 7.5%, but perhaps more for the most disadvantaged programs.


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Business Development Director,
Natural Resources

Paul Chirchirillo
Head of USA Energy Broking,
Natural Resources

North America Regional Industry Leader,
Natural Resources

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