A new intelligence report from Marsh concludes that “energy firms are set to enjoy a softening insurance market in 2010, as a result of increasing competitiveness among insurers and capacity being at its highest level since the capital influx at the end of 2001.”
Marsh’s Energy Market Monitor states that the energy sector can expect a downward rating trend across all classes next year as a result of market-shaping factors, such as:
— A benign North Atlantic hurricane season to date that will, in view of the very high 2009 pricing for this peril, ensure significant profits for the insurance and reinsurance market
— A general absence of significant losses from either man-made or natural catastrophe claims in 2009
— Increased competition for business, both from established players and new entrants to the market
— Deductibles continuing to be at an all time high, for example, 60 days for business interruption cover. Marsh sees little sign of much flexibility in the marketplace; the very strong market discipline on deductibles brought in at the end of 2001 is continuing
Andrew George, Leader of Marsh’s Energy Practice in Europe, the Middle East and Africa, commented: “This time last year, the signs pointed to a near-certain hardening of the market as a result of significant losses in the first nine months of 2008, the losses from Hurricane Ike and the fear of credit default across much of the financial industry.
“What a difference a year makes! The reduction of output and activity, together with shutdowns in the manufacturing sector, has led to a better risk profile in 2009. In addition, many buyers bought less insurance in 2009, which had a direct impact on capacity. For example, capacity for US casualty risks has increased by over 15 percent this year alone.”
He went on to note that the “onshore and upstream property insurance markets have only experienced modest capacity increases.” But Marsh anticipates the situation to expand in 2010 due to “reduced demand from customers, which will make more capacity available, coupled with more insurers vying to secure a larger portion of this potentially lucrative business.
“Increased competition will also put downward pressure on rates, albeit at differing levels across energy insurance classes. Insurance buyers have good reason to feel more optimistic about their insurance spend in 2010.”
Gorge cautioned, however, that “cheaper insurance pricing is no substitute for robust risk management. By having a more complete picture of the risks facing their organizations, energy companies can maximize the impact of these market trends and gain a competitive advantage as the economy recovers.”
In order to address the risks faced by companies in the energy sector, Marsh will host its third National Oil Companies (NOC) conference on 22 – 24 February next year in Dubai. The conference – ‘NOCs into the Future: the Challenges and Opportunities Ahead’ – will focus on the risks faced by NOCs as they make their key strategic and operational plans.
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