Insurer denies Willis claim it has withdrawn from its lead position

Wellington is understood to have dramatically scaled back its willingness to be lead underwriter on offshore construction risks.

The insurer, a dominant player in the sector, denied any change and insisted it was still committed to the sector, but Willis in its July review of the energy market reported that Wellington had given up its near-monopoly position on leadership in the sector.

The broker said: "The market has been thrown into a state of flux as Wellington has recently withdrawn from the class. The expectation is that Wellington will selectively look at new projects, but only for insureds who have renewed their operational programmes with Wellington at the 'right terms'."

The confusion came as leading brokers forecast softening rates after soaring premiums and diminishing losses brought a return to profit for underwriters.

Willis Energy chairman Guy Bessis said the greatest extent of recent rate softening had been seen in the physical damage sector.

The prospect of profits had attracted competition, particularly from Bermudian players. Axis is estimated to be writing energy premiums worth $250m (£157.7m) this year.

Bessis said the offshore construction sub-sector had already begun softening before Wellington's withdrawal. He said: "Clearly the kind of profits achieved in 2002 and 2003 seem unsustainable and we're expecting the market to drift.

"Having said that, we are also witnessing much better underwriting discipline than in previous downturns."

Bessis admitted he had expected the market to stay harder for longer, but added: "It's unlikely we'll see the kind of crazy price war we witnessed in the 1990s. We are seeing a return to competition and a willingness to try to fit the clients' requirements and the insurers' requirements. That's positive long-term for the market and for the client."