The current soft market conditions in the energy market may continue, even if the industry is seriously affected by a major hurricane in the Gulf of Mexico or another major catastrophe during the second half of this year, says Willis Group Holdings P.L.C., in an energy newsletter issued Thursday.
The newsletter, the Willis Energy Market Review, notes that Hamilton, Bermuda-based Oil Insurance Ltd. has increased it’s per occurrence limit to $400 million from $300 million With this, says the newsletter, “Competitive pressures in both the upstream and downstream markets seem to be stoked even further.”
The newsletter also discusses the downstream and upstream energy market separately. Individual underwriters cannot sit out the soft market in the market for downstream energy, which includes oil refining, marketing and natural gas transmission and distribution, says the report.
“Not only would this action lead to lower premium income and therefore less return to capital providers, but brokers will simply turn the screw on the underwriter in question by refusing to allow them to participate on the programs that matter to them most,” says the newsletter.
The newsletter adds, however, that “there is still some measure of discipline remaining in the market,” although “any hopes that some downstream underwriters might have of forcing rates back up to where their models suggest they should be looks doomed to failure.
Discussing the market for upstream energy, which deals with exploration and production, the newsletter says, “the extent of the softening has generally taken the market by surprise.”
“What many had not anticipated or appreciated was the extent of this competition and the effect on the pace of the softening dynamic,” says the newsletter.
Copies of the newsletter are available here.