Energy Market review update -October 2021

Welcome to our Energy Market Review Update for October 2021. Nothing ever seems to stand still in the new era that we all now live in; as many major economies begin to recover from the ordeal of COVID-19 related lockdowns, so fresh challenges make their way to centre stage. Without question, one of these will be the need for fossil fuel companies to continue to access capital in the years ahead, as the energy transition begins to gather pace and Environmental, Social and Governance (ESG) issues rise to the forefront of minds in the risk management, risk intermediary and insurer communities.

At Willis Towers Watson, we strongly believe that an accreditation model is an appropriate and fair way forward for natural resources companies to continue to access optimum levels of insurance capacity from the market in the future. That’s why we have recently launched Climate Transition Pathways (CTP), an accreditation framework within which we are building an insurance standard to address the need for a consistent way of identifying and supporting organisations committed to low-carbon transition. With CTP, insurance can contribute to climate transition and be recognised as a force for good. So in this update we have included a feature on CTP written by two of our experts: Liz Lister who is Global Head of Innovation and Sustainability at Natural Resources and Tony Rooke, who is Willis Towers Watson’s Director of Climate Transition Risk.

Meanwhile conditions in the global Energy insurance markets are no longer quite as grim from a buyer perspective as they were 12 months ago. While it’s still true to say that this remains a hardening market, at least the actual rate of hardening has now eased in all three of our major markets. In the past, the improved loss records in both the Upstream and Downstream markets might well mean that the drive for premium income and market share would outweigh any determination to maintain the hardening momentum. However, much as we would like to announce the beginnings of an actual market softening, the impact of 2021’s major natural catastrophe losses on the overall Property & Casualty portfolio and the degree of management scrutiny on individual insurer portfolios has meant that, for the time being, rating increases generally still remain the norm.

However, in the long-term it is clear that risk managers in the fossil fuel industries are going to have to focus more on their ESG profiles than the actual price of their product. Indeed, as we recently pointed out in our article “Climate risk and the energy transition: a wake-up call for natural resources risk managers?”1buyers will have to come to terms with a renewed focus on ESG issues from the insurance market as 2022 approaches. At the moment, insurers are adopting a variety of positions on ESG so there is little by way of market consistency on this issue. Going forward, it will therefore be up to us as risk intermediaries to guide our clients through what is going to become an increasingly complicated market environment.