2017 trading conditions may become the ‘new normal’ in insurance industry

Low oil prices, cost control pressures, workforce layoffs, onerous legislation/regulation and the escalating risk of cyber-attacks the new normal.

Despite an encouraging uplift in the energy industry during the last 12 months, the industry is still beset by some significant challenges, including  in the industry, according to Willis Towers Watson’s Energy Market Review for 2017.

At the same time, there may also be a “new normal” emerging in the global Energy insurance markets. The abundance of (re)insurance market capital, the driving dynamic behind market conditions now for nearly a decade, is likely to remain dedicated to the industry – no matter what individual sector loss records produce, the Review adds.

Key insurance market findings from the Review include:

Capacity: Upstream market capacity is up from US$7.56B to US$7.72B, International Downstream from US$6.19B to US$6.5B and International Liabilities from US$3.2B to US$3.3B.

Losses: Over US$5B of upstream energy losses were recorded for 2015, the highest loss total for five years. Meanwhile downstream energy losses for 2016 now stand at US$2.58B, up significantly from 2015’s total of US$1.91B.

  • Premium income: From a high of £1.06B in 2014, in two years Lloyd’s premium income from Energy business has declined to just £700M in 2016.
  • Profitability: while individual Energy portfolios have generally remained profitable during 2016, we believe that should the current loss record deteriorate by only a small degree during 2017 then this might well be sufficient to threaten their viability.
  • Competition: competition in all Energy markets remains robust, fuelled by the broadening of leadership options in all lines of business.

Willis Towers Watson’s report says that as of April 2017 markets are still softening, albeit at a decelerating pace. This deceleration may transition into a broader bottoming out of market conditions should individual portfolio loss records deteriorate further late in the year.

“The long term outlook for Energy insurance buyers remains uncertain,” said Neil Smith, Willis Towers Watson’s Global Product Leader for Natural Resources Lines. “History teaches us the market conditions in these lines of business can change rapidly and should this prove to be the case, buyers will need to ensure that they have the right strategy in place to ensure the continued viability of their risk transfer programmes.”

Copyright © 2017 Transcontinental Media G.P.
Transcontinental Media G.P.