In the report, WTW found that the scales were well balanced across all markets, with most portfolios returning to profitability. However, he found that the absence of any new underwriting leadership and the reluctance of insurers to ‘fall from the ranks’ prevent brokers from forcing fundamental changes in market dynamics.
Graham Knight, head of global natural resources at WTW, advised the energy sector to deal with the consequences of the energy transition which could be accelerated by recent events in Eastern Europe.
“Now we have a new factor to add to the mix – a significant future loss of energy market premium income from Russian companies. It is really too early at this stage to accurately predict what effect this withdrawal of income premium will have on market conditions,” Knight said. “On the one hand, insurers can use this factor to insist on recovering lost premiums by re-imposing large rate increases; on the other hand, they can be inclined to compete more aggressively for the rest of the premium income pool.
The WTW report expects a near-term fossil fuel ‘frenzy’ due to the crisis in Eastern Europe which will shift the balance of the broader energy trilemma of affordability, availability and reliability.
“It is likely that some assets will need to increase production and/or other mothballed assets will be brought back online. The big question, of course, is whether maintenance and capital expenditures have been maintained for these facilities; otherwise, we can perhaps expect a future escalation from current loss levels affecting energy insurance markets, which could fuel a return to challenging market conditions,” Knight said.
“It remains to be seen how markets react to the depletion of premium income following sanctions and a short-term increase in fossil fuel activity. In the meantime, the energy transition will not wait for anyone; risk manager involved in the industry will have to deal with the uncertainties resulting from both the new geopolitical landscape and the growing momentum towards achieving net zero emissions targets.