Increased capital from institutional investors is pushing rates down
Energy insurance rates are facing downward pressure from increased competition and reduced reinsurance costs, according to Marsh’s Energy Market Monitor.
An influx of capacity from new capital providers, such as private equity firms, pension funds and hedge funds, reduced reinsurance costs and few losses in 2013 have contributed to the softening of prices
The report says many insurers are displaying an increasingly strong appetite for energy risks and released additional capacity in the first quarter of 2014.
The increase in capital in the market may not be sustainable, however, according to Marsh Global Energy Practice chairman Andrew George.
He said: “The additional capacity created by an influx of capital from private equity and hedge funds could be potentially short-lived, if expected returns on investment fail to materialise. Meanwhile, longer-term investments from pension funds could provide greater stability, although this type of capacity is only just starting to have an impact.
“Reduced reinsurance costs, good loss ratios particularly in the upstream business, and an intensified focus on growth by key insurers all indicate a downward pricing trend across key energy risks.
“This downward pressure on rates is likely to accelerate leading up to mid-year renewal dates.”