Energy liability: Selective softening or turn of the tide?

At a glance: Energy liability insurance trends

• Directionally, the liability market is softening
• Domicile, limit and energy sector will strongly impact renewal outcome
• For international accounts, this translates to moderating rate increases but with flat or rate reductions in certain situations (small limit/local capacity-based placements)
• U.S.-exposed risks are seeing the greatest average rate increases
• Social inflation remains a major concern
• Terms and conditions remain tight
• ESG is still on the agenda but with greater flexibility by many insurers
• Differentiating from the pack will ensure the best results

Market profitability: A positive tide

Following a sustained period of unprofitability, the casualty sector has now had a consistent run of three years of underwriting profit.^[1]

Table 1: Lloyd’s annual results for casualty

Lloyd’s annual results for casualty

Year	Gross written premium £m	Combined ratio %	Underwriting result £m
2014	4,959	98.1	74
2015	5,764	100.1	(5)
2016	7,131	102.7	(146)
2017	8,464	103.1	(189)
2018	9,094	102.9	(183)
2019	9,459	105.7	(390)
2020	9,067	110.3	(688)
2021	10,360	100.3	(17)
2022	12,987	93.7	536
2023	12,991	93.6	576
2024	13,403	95.5	890

Capacity: Neutral buoyancy

Global capacity has remained broadly stable, but underlying changes are significant. Major insurers are reducing line sizes with a number constricting from $100 million to $75 million or from $75 million to $50 million, while Bermuda market excess liability insurers are trimming their lines to limit exposure. Conversely, international liability insurers with smaller capacities are increasing their line sizes, providing greater competition and capacity for energy companies with low limit requirements.

Regional market capacity: The counter current

Despite caution from major global insurers, regional market capacity is expanding, particularly in Australia, the Middle and Far East, and Latin America. Competitive local pricing and the need to meet premium income targets are driving fair and realistic renewal pricing on international business.

The three-speed market

Insureds will experience differing renewal outcomes based on their liability exposures:

• Non-U.S. programs with small limits: These will benefit from strong competition, with flat renewals or modest rate reductions.
• Larger programs requiring significant international capacity: These will see more measured renewals with low single-digit rate increases.
• U.S. renewals: These will experience mid-single-digit increases on average, with variations depending on the energy sector.

Social inflation: Beware the rip current

Social inflation, defined as an increase in liability compensation costs above general economic inflation, is a growing concern. In the U.S., litigation costs have driven up liability claims by over 57% in the past decade.^[2] The phenomenon of “thermonuclear verdicts” (claims in excess of $100 million) is becoming more common, with 27 such claims in 2023 alone.^[3] This trend is also spreading to Europe, Australia and Canada.

The U.S. casualty market has choppier waters

The North American energy casualty market faces varying conditions across different sectors. Primary liability remains stable, but challenges persist in the oilfield services segment. Excess liability remains stable for most segments, though capacity within the first $25 million is cautious due to lawsuit abuse issues.

Global trends to watch

• Contractor injuries/limits: Large claims impacting excess liability carriers are often related to workplace injuries sustained by contractors.
• Continued underwriting focus on fleet safety programs: Insurers are paying closer attention to buyers’ fleet safety programs. Energy companies should focus on driver training, consistent motor vehicle reports (MVR) reviews, and telemetric devices to differentiate themselves.

Current market conditions are creating a riptide effect on the global liability marketplace, with pressures flowing in different directions. Sometimes contradictory, sometimes concurrently, sometimes overlapping. In the same way that tide times and beach locations can create differing sea conditions, differing domiciles and energy sectors will yield very different liability renewal outcomes.

Contact our liability team to find out how your company can sail through potentially choppy currents in 2025.

Footnotes

1. Lloyd’s Full Year results 2024. Return to article
2. Litigation costs drive claims inflation: indexing liability loss trends. Return to article
3. Marathon Strategies. Return to article