Excess capacity and continuing competition among insurers have made for favourable buying conditions for many energy firms in the final quarter of 2011.

However, in its latest Energy Market Monitor, broker Marsh reports that some segments of the energy insurance market have become increasingly contradictory, signalling a possible change in conditions next year.

“We have entered a period where the energy insurance market is much more difficult to read. The fundamentals still point to a soft environment, but the reality of the marketplace is much more complex,” commented Jim Pierce, global chairman of Marsh’s Energy Practice. “Capacity is in a state of flux. While some underwriters are offering favourable terms before year-end, others are planning to reduce capacity for certain lines of business in 2012 or have already done so in 2011.”

Marsh states that a contraction in capacity for excess energy liability for US domiciled risks has had a particularly negative impact on insurance placements in excess of US$200 million. Conversely, the international casualty onshore market continues to defy expectations and remains buoyant, with price reductions still achievable. The broker also notes an increased divide between insurers and reinsurers. Reinsurers have taken a hardened approach following natural catastrophe losses. As a result, some market share has moved to specialist energy insurers, who broadly recognise that energy firms have suffered few natural catastrophes losses in 2011. Marsh expects this trend to continue in 2012.

“Risk differentiation is crucial at this time. Some underwriters have expressed concerns about writing business for companies they have not met in person, while others are casting increased scrutiny over submissions. Never before has it been so imperative to distinguish each risk as best in class, in order to secure the best outcome,” concluded Pierce.

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