Energy Market Review 2024

Welcome to the first Energy Market Review of 2024. In a period of geopolitical and economic instability, it appears that the energy insurance market is ready to provide us all with some much-needed stability and certainty with the balance of power once again shifting in buyers’ favour. However, when we delve deeper into the range of factors driving the energy market conditions, we realize that the market really is a story of two halves, with a widening desirability gulf emerging.

Relatively benign loss activity across all of the energy sectors in 2023 sees markets return to profitability once again. However, the positive headline numbers belie the true impact of the 2023 reinsurance renewals, which saw treaty deductible increases for many insurers. In real terms, this has resulted in carriers taking more attritional loss activity on their own bottom line and we certainly have seen a fair share of attritional losses in 2023.

Despite this, insurers appear to show no signs of withdrawing from the energy sector, which remains profitable for most, and capacity across all of the energy occupancies is still abundant, albeit stabilizing.

The increasing amount of risk and performance data now available to insurers has led to carriers having a far clearer view of the most profitable business within the portfolio. This new, deeper insight has resulted in a homogenization of risk appetite amongst carriers, with a strong drive from most markets to grow the same, highly desirable 'upper tier' business.

This widening desirability gulf between the best and the rest is great news for the most desirable clients, and competitive pressures for this upper tier business will drive softening rate trajectories throughout 2024. However, this is less good news for the smaller, less desirable placements, which may be viewed by insurers as less attractive on account of lower premium volume or risk exposures and these placements may face a greater challenge for optimum capacity.

Additionally, there is not enough upper tier business to satisfy the appetite of all global energy insurance markets, so clients will need to make tough decisions on which markets to align themselves with, which will inevitably split the market into the ‘haves’ and the ‘have nots’.

Those carriers coming out on top will be those that are able to develop the broadest client relationships and support those clients across multiple lines of business and with new risk exposures and corresponding, relevant products.

In the long term, this could result in a retraction of the smaller, more specialized carriers, who are not able to provide such a wide cross-class offering but are reliant on premium from their current upper tier business to support their portfolio. This in turn would spell bad news for smaller clients and/or those with less desirable placements, which often rely on the capacity from small, specialized insurers to be able to complete their programs. These clients will need to work with their brokers to find ways to positively distinguish their placements to continue to attract strong market support and optimum terms.

Environmental, social and governance (ESG) considerations are now well understood amongst insurers and we are pleased to report that the majority of carriers have adopted a partnership approach of supporting their clients through the transition in favor over applying exclusion policies.

Insurers are readying themselves to support the energy transition, with several setting up dedicated holistic energy transition offerings that recognize the complex cross-sector and cross-class nature of the solutions required. Insurers are keen to support clients with their emerging exposures generated by the adoption of transition technologies, such as carbon capture and storage and hydrogen and are viewing these new technologies, alongside renewables, as a key component of their future portfolio mix. Premiums from these technologies will in time supplement insurers’ current oil and gas income, which is showing signs of shrinking through increased client self-insurance, greater captive utilization and merger and acquisition activity.

But risk leaders need to look beyond the day-to-day risks to their organizations and consider the longer-term emerging risks on the horizon. The energy transition, geopolitical developments, sustainable capital and the changing macroeconomic environment, create new risk considerations as well as leading to unexpected combinations of existing risks that could have a more severe impact on businesses than was previously anticipated.

It is important for risk leaders to conduct regular horizon scanning and to work with their specialist brokers to promptly address any and all emerging risks, be that through proactive risk management or by working with intermediaries and insurer partners to develop future proof risk transfer and/or retention solutions.

In this year’s Energy Market Review, we delve more deeply into the factors affecting our three core energy markets; upstream, downstream and liabilities, as well as discussing some of the key emerging risks, focusing on carbon capture and storage as one of the preeminent emerging transition technologies. We will conclude by providing a market view from our key geographical hubs of North America, Latin America, Dubai, Norway, Singapore and China.

We hope that you find the review to be insightful and look forward to discussing any of these topics with you in more detail and hearing any feedback that you may have.

Featured articles from the review

1. 01

   Emerging and interconnected risks

   In this article from the 2024 Energy Market Review discover how emerging risks are reshaping the energy landscape.

2. 02

   Carbon capture and storage: Has the insurance market adequately responded to operator needs?

   In this article from the 2024 Energy Market Review explore Carbon Capture Storage (CCS) investment risks & regulatory variances in key jurisdictions.

3. 03

   Upstream energy: The quality gulf widens

   In this article from the 2024 Energy Market Review we reflect on the 2023 global upstream energy market and forecast trends for 2024.

4. 04

   Downstream energy: Light at the end of the tunnel

   In this article from the 2024 Energy Market Review we analyze the global downstream energy market of 2023 and forecast what to expect in 2024.

5. 05

   International liability: The end of the hard market?

   In this article from the 2024 Energy Market Review, we explore the energy liability market trends: treaty renewals, profitability, social inflation, and much more.

6. 06

   North American energy casualty: A tale of two markets — oilfield services

   In this article from the 2024 Energy Market Review we look at the North American casualty energy insurance market.