Downstream energy capacity tumbles, WTW reports

Ongoing losses and unprofitability in power, mining and renewables have contributed to a decrease in underwriting capacity in downstream energy, Willis Towers Watson has said. In its latest Energy Market Review, the advisory said market capacity appears to be fluctuating, with a marginal increase in the upstream market (from US$7.7bn to US$8.1bn) but also the first decrease in the downstream market (from US$6.8bn to US$6.2bn) since the aftermath of 9/11.

Upstream had another mild loss year, it said, however, land rig and other onshore losses are currently causing insurers concern. In contrast, the downstream market has had another gruelling loss year, while the recent twin losses emanating from Darwin, Australia are causing serious concern in an already reeling construction market.

Head of natural resources GB at Willis Towers Watson, Graham Knight, commented: “This year’s Energy Market Review highlights the inherent volatility in our insurance markets, which are now showing increasing signs of hardening. In this challenging market environment, we have to adjust to the way in which energy industry risks are identified, collated and presented to insurers in an era where big data is king, and we have to be relentless in our pursuit of fresh ideas that produce valuable new products and services for the energy industry.”

The upstream market has continued to generate underwriting profits, although Willis says it does not believe it would take much to change this were the current mild loss record to deteriorate. For downstream however, it considers prospects to be bleak.

Willis’ report also points to concerns in the industry around the increase in geopolitical risks, cyber risks and trade risk volatility, and governmental regulatory change relating to climate resilience.

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