The energy insurance and reinsurance sector has witnessed continued softening of prices and expansion of terms and conditions at recent renewals, helping protection buyers to more positive dealings with risk transfer partners, according to JLT Group’s Lloyd & Partners unit.
The offshore and onshore energy insurance market has softened rapidly, nearing the point of a cliff edge in terms of pricing. But while price reductions are deemed “relentless” by Lloyd & Partners, the benefit to the buyers of protection is tangible and likely to continue to be seen.
The broker does believe that some kind of correction is likely, however this may not be a period of cycle, it could be an ongoing shift towards a more sustainable level of lower pricing for energy insurance and reinsurance.
That is aligned with the views of many in markets such as property catastrophe risks, where the very low pricing is not expected to bounce back to levels seen previously. Rather a market cycle with lower peaks and higher troughs is predicted, which seems very likely to be the future scenario for the energy re/insurance sector as well, particularly given the levels of capacity now targeting this sector.
But more pain is likely for the intermediaries, with “More expense taken out of both the broker and underwriting chain before the market finds its level,” Lloyd & Partners explains.
Factors point towards an energy re/insurance market “on the cusp” but there is still no guarantee that the market will revert to price levels seen in the past.
“However unpleasant and painful from a broker and underwriting perspective, market forces will of course prevail and
the likely end result will be a sustainable competitive market that will benefit buyers in the long run; this scenario to many looks much like continuing correction, not a period of cycle,” the broker explains.
It looks like more pain is ahead and Lloyd & Partners notes there will be differences between levels of service and product on offer in this stage of the market, making selection of partners and counterparties ever more important for protection buyers.
