0:03
SPEAKER: Welcome to WTW's Global Marketplace Insights series, where our experts bring you the latest risk and insurance perspectives.
RUPERT MACKENZIE: Hi, I'm Rupert Mackenzie, and I lead the Natural Resources Global Line of Business here at WTW. During the next 5 to 10 minutes, I'll be giving you a snapshot of the recent developments across the property, business interruption, and liability markets. Softening conditions are emerging as the key trend across the board as we look ahead into 2025 across all the key natural resources sectors,upstream and downstream energy, power, mining and metals, and renewables.
0:53
So let's get into more detail, starting with the upstream energy market, where capacity remains largely stable for most risks. For 2024 so far, loss runs look pretty favorable at around $500 million. Despite the 2023 loss record, which mainly stemmed from an uptick in attritional losses. the upstream market is now giving reductions on all but the least desirable business.
1:20
The gulf between the most attractive risks and least appealing non-renewable or attritional placement remains. Premium remains the core differentiator, with significant competition for large premium generating risks, where insurers are looking to increase their participation, creating downward pressure on pricing. Market conditions continue to soften, and a majority of our portfolio is renewing with reductions.
1:48
Meanwhile, in the downstream energy market, the absence of any major losses so far in 2024 has created opportunities for some markets to increase their market share and, in some cases, look to secure lead positions. This may be a strategic move to become sector leaders or a hedge against a falling rate environment that most carriers believe will continue into 2025.
2:13
Capacity remains stable with midstream and Liquid Natural Gas (LNG) risks being preferred classes. Business interruption (BI) values are still very much under the spotlight, and insurers are expected to provide regular independent valuations and provide BI workings. Where insurers are not comfortable with the reliability and accuracy of valuations presented, they are more likely to respond cautiously to the program or apply rate increases to allow for the lack of premium income. Market conditions point to increased reductions for tier 1 business and flat rates for tier 2, with loss-affected programs being the only ones paying increases at renewal.
02:56
Let's take a look at the power market. Last year, the brakes were on, and it looked like softening market conditions would slow. But now we're seeing softening conditions emerging at a faster rate than anticipated. With the exception of tunnel collapses, which has emerged as a major outlier, there's been an absence of headline losses in both 2023 and 2024. This has gone some way to encouraging fresh competition to enter the market, bringing in influx of capacity.
03:25
Incumbent markets are pushing for increased lines and broadening the scope of occupancies considered, all signs that rates are stabilizing and returning to a level of profitability. These competitive pressures are now pushing lead insurers to offer capacity and rate reductions for risks. We are seeing programs being successfully restructured to drive better rate reductions.
03:53
For the mining and metals sector, recent market losses have overturned the profitability built in previous years, but insurers are continuing to compete for business, maintaining competitive pricing and increasing capacity. Underwriters are looking to deploy disproportionately more capacity on the best business.
04:10
Global insurance market capacity for mining is at around $1.25 billion per risk. There have been no major specialist mining market withdrawals or entrants in the last 12 months, but we would not be surprised to see a couple of new entrants over the next 12 months as the fight for quality business heats up. Relatively straightforward 1/1 treaty renewals for non-catastrophe business may feed into a continued period of direct rating stability.
04:41
In the renewables sector, overcapitalized renewable and clean energy markets have about $2 billion of available risk capacity for renewable energy projects. With Lloyd's combined ratio at around 80%, insurers are making money, and we expect to see softening market conditions for renewables in 2025, provided there are no severe nat cat losses. Against this backdrop, some experience and reputable follow markets are now looking to move into lead positions, writing a broader scope of energy transition risks, including clean gas.
05:20
London remains a key market for writing complex novel and capacity risks in the renewables space, although we are seeing increasing amounts of capacity being deployed by specialist regional insurers. Most large projects continue to be insured on an agreed-value basis with construction and outlier, which is still full value or total sum insured. There's also a wide discrepancy in the quality and value of the wordings, so examining wordings with an expert eye should be a focus as we look ahead.
Lastly, let's touch on the liability markets. For international liability risks, the total realistic available capacity continues to sit just above $1 billion versus a theoretical capacity base of circa $3 billion. Liability buyers are now benefiting from increased insurer selection after an influx of new entrants and existing carriers increasing their maximum line size drove a slight uptick in overall capacity. Insurers continue to push for rate increases, although this has moderated, with insurers considering flat renewals or discounts on placement they are keen to retain. This will be a growing trend as insurers make moves to achieve ambitious growth targets.
06:40
But placements with significant US exposure continue to face greater scrutiny, including those within international portfolios with carriers looking to manage line sizes. The US market has its particular challenges, with the oilfield services and auto liability sectors experiencing extremely challenging conditions in 2024, which are likely to continue well into 2025.
07:07
In auto, despite nine consecutive years of rate increases for primary auto liability, losses continue to outpace rate increases each year. Jurisdictions that used to be considered neutral are now becoming plaintiff-friendly venues, as well as in places like the Permian Basin, where activity is concentrated and frequency of losses is high and additional areas such as Louisiana and South Texas continue to be challenging.
07:38
The oilfield services segment continues to see the largest uptick in general liability and excess liability claims due to an increase in severity in both judgments and settlements for workplace injury lawsuits. Action over lawsuits appear to be increasing from both a frequency standpoint, and settlements continue to be paid by lead umbrella policies, impacting limits availability from certain carriers.
08:06
Internationally, Per- and polyfluoroalkyl substances (PFAS) exclusions are also being applied as a default position. Increasingly, this is being driven by pressures from senior management and treaty reinsurers following increasing litigation trends. These litigation trends, social inflation, and insufficient reserving remain a key consideration for underwriters, although concerns around economic inflation have slightly abated. There is an increasing trend of buyers and insurers seeking long-term agreements due to both parties favoring stability, which looks to be a focus for all natural resources sectors.
08:48
On average, mid to low and mid to single-digit increases continue to be the norm. However, this can vary upwards or downwards, depending on the nature of the risk, competition, and rate adequacy. I hope this quarter's insights have been helpful. Our sector focused specialists will keep their fingers on the pulse of the market so that you can make future ready decisions. If you have any questions or would like more detail on any of these topics, please do reach out.
