Energy Market Review Update 2023

The 2023 Energy Market Review Update examines the current state of the global upstream, downstream, international liability and North American casualty energy markets.

Welcome to our Energy Market Review for the final quarter of 2023. In this update, we will share our thoughts and findings on the state of the global upstream and downstream markets, as well as focusing on the international energy liability and North American energy casualty markets.

The wider market environment for oil and gas companies continues to be plagued by global inflation as well as commodity price volatility and supply chain delays. These macro-economic factors have affected clients and markets alike, right across the insurance spectrum and continue to be a focus area for insurers. Over the last year we have supported many clients in carefully reviewing their asset values and business interruption projections underpinned by detailed engineering and risk analytics work. This work has certainly assisted clients in obtaining more favourable renewal terms from the insurance market and carriers have greatly valued this effort. As a result, we have seen insured values increase for most clients, which has bolstered the pool of market premium and assisted insurers in reaching their 2023 budget targets.

The energy transition remains at the forefront of the minds of clients and insurers alike and we have been encouraged by the number of carriers willing to actively support clients through this process rather than excluding certain business activities. We have seen markets starting to branch out from insuring traditional oil and gas activities to also cover renewables and key emerging transition technologies such as hydrogen, battery energy storage, interconnectors and carbon capture. The WTW Natural Resources Global Line of Business model is ideally placed to bring together experts from right across the various occupancies to work flexibly with the insurance market to develop new solutions to support our clients' ongoing energy transition efforts.

As the investment market once again yields more meaningful returns for capital providers, the insurance industry is on the brink of a renewed focus on cost of capital optimisation to ensure it continues to deliver the desired results for investors. We are already noting the first signs of this cost optimisation drive as more and more carriers are deploying at least some of their capacity through MGAs and other cost-optimised follow capacity vehicles. However, certainly for the time being, the capacity deployed through these vehicles is largely accretive to existing open market capacity and as a result market capacity right across the energy sector remains abundant.

This is particularly surprising considering the significant loss activity across the sector in the last two to three years. We view this continued commitment by capital providers and the market as a whole as a sign that they view this increased loss activity as a momentary blip rather than a long-term trend and that they are willing to continue supporting energy clients in the foreseeable future.

As always in the latter part of the year, a degree of uncertainty remains as insurers' 2024 reinsurance treaties are in the process of being finalised. Whilst we do not expect a season as punitive as last year, the market is likely to remain more disciplined towards the end of the year as many carriers have already made budget and will seek to hold out committing to 2024 renewals until they have a clearer view of their reinsurance treaty terms going forward.

Looking forward to 2024, the continued abundant capacity, when combined with the increased risk selection now deployed by insurers, is set to increase competitive pressures on the most desirable business and we believe that we are on the cusp of a return to the softening phase of the market cycle in 2024.

We hope you enjoy reading the Energy Market Review Update and, as always, we appreciate any feedback or questions you may have.

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