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Survey Report

Insurance Marketplace Realities 2023 Spring Update – Energy

April 28, 2023

There has been a re-hardening for downstream energy and current hardening dynamic cannot be sustained indefinitely for upstream energy.
Rate predictions: Energy
  Trend Range
Downstream property    
Well-engineered, well over-subscribed large premium programs Increase +5% to +10%
Clean risks Increase +10% to +15%
Loss affected business Increase Exponential
Upstream property    
Major E&P programs Increase +5%
Offshore contractors Increase +5% to +7.5%
Small to medium E&P programs Increase +7.5% to +12.5%
Midstream Increase +15% to +20%
Offshore construction (platforms) Increase +15% to +25%
Onshore contractors Increase +20% to +30%
Offshore construction (subsea) Increase +30% to +50%
Loss-affected business Increase Exponential


Negative factors impacting the market in early 2023

  • The effect of January 1 reinsurance renewal season: It was not simply the range of rate increases by reinsurers which caused some consternation in the downstream market but also the scale of the retention increases — for some, up to double the same figure for the previous year.
  • Recent major losses have wiped out recent profitability: The overall downstream loss total in our database now stands at nearly $7 billion, a record for this century except for 2005.
  • There is no threat to the established market leaders: We are seeing a retrenchment in almost every area of the downstream portfolio.
  • Concerns remain over impact of inflation on declared values: There is now a real danger that the market may overreact to submissions that repeat existing value schedules.
  • Increased senior management scrutiny has led to less harmonization of placements: Instead, individual underwriters are more concerned about “stepping out of line” and failing to adhere to management directives.

Positive factors suggesting an improved position later in 2023

  • Current capacity levels have been maintained, so premium income targets are likely to be maintained (or even increased). This in turn is likely to ensure that there will remain a healthy appetite within the market for the most well-regarded business.
  • A “new normal” for refinery and other plant volatility has emerged: If oil and gas prices continue to stabilize at the current lower level, then refinery and other plant utilization rates will also begin to follow suit, which in turn should encourage insurers to offer more preferential terms in exchange for increased premium income.
  • Excellent overall insurer results: We have seen combined ratios well beneath 100% reported from several key (re)insurers in recent weeks, which should help prompt more aggressive premium income strategies.
  • Some attractive programs are still over-placed: Premium attracts capacity, and the market continues to differentiate strongly in favor of the best business. From our own review of our current programs, we can see that there is already some underwriting “slack” that can be taken up by brokers without materially affecting these programs’ current terms.
  • The Everen limit increase may add to competitive pressures: At the very least, it represents an alternative that may well secure increased leverage to limit the extent of insurers’ drive toward increased rating levels.
  • Pressure to meet premium targets later in the year: Increased reinsurance costs must be paid for somehow, and the market’s appetite for premium income tends to increase as the year progresses and when income targets still need to be met.

Will the downstream market overplay its hand?

  • History suggests that the current hardening dynamic cannot be sustained indefinitely.
  • There may come a time when capacity providers require a better return, while buyers may decide that there are now other ways to manage their risk than the simple purchase of insurance.
  • Insurers will be hoping that they can rely on their most coveted long-term relationships to ensure that these clients don’t walk away from the market.


Negative factors impacting the market in early 2023

  • The impact of the January 1 reinsurance market season: This has had a marked effect on pricing, retentions levels and coverage.
  • The deterioration of the loss record at a time of declining premium income: Our WTW Energy Loss Database now shows several 2021 losses which had not been advised to the database this time last year, with 2022 looking to follow the same trend. Furthermore, overall sector global premium income estimates have actually decreased for 2022.
  • Large areas of the portfolio remain unprofitable: These include onshore contractors, subsea construction and midstream.
  • The market leadership panel remains basically restricted: The withdrawal of the MRS Syndicate last year has only served to restrict the choices of leader even further.
  • Concerns over accuracy of values remain: Arbitrarily reducing or maintaining existing values in this economic climate is likely to be counterproductive in two ways; first, it may mean a higher rating increase than normal and second, should a loss materialize, it is equally likely that insurers will apply average (if such a provision exists).
  • The impact of continued management control over underwriting strategy: It seems to increasingly be the case that underwriters do not have the same flexibility and ability to make individual underwriting decisions that many in the market have become accustomed to.

Positive factors suggesting an improved position later in 2023

  • Abundant capacity has been maintained: Capacity levels at a continuing record high, with just over $7 billion of “realistic” market capacity is still available for the most attractive programs.
  • High oil prices are likely to lead to increased construction/drilling activity and LOPI values: The additional premium generation resulting from increased drilling and exploration activity will lessen pressures on rating levels.
  • The growth of the facultative reinsurance market: The purchase of more facultative reinsurance may enable direct insurers to offer more competitive terms in the future.
  • Pressures to maintain premium income levels will remain: Insurers will still need to secure sufficient premium income to pay for their reinsurance costs, in terms of not only their treaties but also any facultative reinsurance purchases.

History suggests that the current hardening dynamic cannot be sustained indefinitely.

  • This is a market which is increasingly differentiating in favor of the most sought-after business.
  • It is entirely possible that later in the year the pressure will be to meet premium income targets — if only to pay for expensive reinsurance programs.
  • This may allow some buyers and their brokers to drive improved terms from the market in return for increased line sizes and positions on the best programs.


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).


Business Development Director,
Natural Resources

Natural Resources Industry Vertical Leader, North America, WTW

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