Excess capacity helps blunt energy renewals: Willis Towers WatsonPosted On: Apr. 5, 2018 11:24 AM CST
The glut of capital in the reinsurance sector extended to the energy sector and helped blunt market reactions to the downstream sector’s more than $5.5 billion in losses, the worst in 10 years, according to the report Energy Market Review for 2018 from Willis Towers Watson P.L.C. on Thursday.
Meanwhile, capacity continued to grow for both markets, to $7.95 billion from $7.56 billion for upstream property markets, and to $6.80 billion from $6.19 billion for downstream, according to the report and previous year figures from a company spokeswoman via email.
Upstream markets are generally those involved with exploration and production of petroleum, while downstream consists of the refining, processing and petrochemical operations.
Limited losses in the upstream market, together with the excess capacity, led to what Willis Towers Watson called a “modest upswing” in the market and an end to deteriorating conditions, according to the report.
In the wake of the more than $130 billion of insured losses from the 2017 hurricanes, the report said many market leaders signaled there would be a market upturn by December. “Three months on, we can say that these leaders have been somewhat disappointed,” with reinsurance treaty rate increases “milder than predicted,” Willis said in its report.
Given there is no end in sight for excess capacity, “we think that it is still possible for the softening process to reassert itself later in the year,” the report said.
Downstream markets, however, did not have the same benign season as upstream, the report said.
Despite the substantial losses, however, underwriters must still deal with the excess capacity in the market, the report said.
Even given regional difference and limitations in the highly diverse downstream market, “there is certainly just as much capacity available to buyers as there was last year – something that is likely to frustrate attempts to raise prices by more than a modest degree in 2018,” the report said.
This, despite the fact that major losses of more than $100 million continue to increase in the downstream market, to 13 in 2017 from 9 in 2016 and just three in 2015, according to the report.
“Looking back at the terrible hurricane season in 2017, we can now say with some confidence that the apprehension felt by many energy insurance buyers in the immediate aftermath of these hurricanes has to a large extent been unfounded,” Neil Smith, head of natural resources property and casualty at Willis Towers Watson, said in a statement accompanying the report.
“Despite the 2017 storms producing well in excess of $75 billion of insured losses, the turnaround in market conditions has been much more modest in comparison to other major events of the last decade,” he said.