Absence of major windstorm loss in Gulf of Mexico has left market in good shape

An absence of a major windstorm loss in the Gulf of Mexico for five consecutive years has left the energy insurance market entering 2014 with competitive terms for energy firms with good claims histories, according to Marsh’s latest Energy Market Monitor report.

Marsh said that insurers believe their casualty products for energy risks are under-priced and the debate surrounding ‘cost of capacity’ continues to dominate the marketplace.

Pricing for casualty risks is unlikely to move downwards owing to a continuing lack of capacity. Marsh found that rate increases of between 3% and 7% were not uncommon in Q4 2013.

In addition, underwriters are developing an awareness of what energy companies do, which in turn means that firms are being asked more far-reaching questions by insurers.

The report said: “With much of the casualty market writing every industry, the economic downturn has resulted in a greater energy proportion in their book. With this greater proportion, the underwriting models and guidelines are seeking more sophisticated answers and a deeper understanding of the industry and how it conducts itself … Many insureds are being asked more far-reaching questions than the rating metrics of the past.”

According to the report, energy firms that are leveraging analytical tools to demonstrate risk management practices to insurers are in a stronger position to secure competitive programmes at renewal in 2014.

The report states that capacity in the global energy insurance market for upstream risks currently stands between $3.75bn (£615m) and $4bn (£656m).

In the downstream energy market, insurance capacity plateaued in the final quarter of 2013.

Capacity stands at approximately $3.5bn (£574m) for non-US risks and $2.5bn (£410m) for US downstream risks.