Recent natural catastrophe losses, including last year's Hurricane Sandy, have prompted a mild hardening in the Downstream Energy insurance market, so much so that some Downstream insurers may be on the cusp of withdrawing from the market, according to Willis Global Energy, part of Willis Group Holdings, the global risk adviser and insurance broker.
"An atmosphere of pessimism seems now to hold sway in the Downstream Energy insurance market following two poor underwriting years in succession," revealed the Willis Energy Market Review 2013. "Although capacity levels continue to increase, past history suggests that if one or two leading insurers withdraw from this class, others may follow suit."
In contrast the outlook for the Upstream Energy market is very positive. The market experienced an excellent 2012 in terms of premium income and loss record - indeed this is a market that has proved to be consistently profitable in recent years. However further softening in the market is likely to be moderate, cautioned the Review.
Meanwhile, the energy industry continues to face significant and complex supply chain exposures, partly because of a lack of information regarding the risk profile of key suppliers. This has hampered the application of effective risk management strategies. The Review counsels that energy companies may wish to consider the adoption of a comprehensive Business Continuity Plan to manage this critical supply chain risk more effectively.
"It appears that good news may now be on the horizon for the majority of Upstream Energy insurance buyers" commented Alistair Rivers, Chief Executive Officer, Willis Global Energy. "However, the Downstream market remains mired at the bottom of the underwriting cycle; although as yet there have been no major withdrawals, another poor loss year in 2013 will surely cause some insurers to think seriously about a change of underwriting strategy," he continued.