Published on 06 July 2023

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Energy Casualty Insurance Market Update 2023

Published on 06 July 2023

The US and International Energy Casualty markets are experiencing single digit rate increases however insurers in the International markets are refusing to write certain risks whilst capital providers in the US market look to take advantage of a stabilised rating environment.

US Energy Casualty

• In the first half of 2023, available capacity increased marginally, and with new entrants expected to enter the market, capital providers will look to take advantage of a stabilised rating environment.
• Prior-year reserving continues to be an issue for Insurers following a significant number of inflated claim settlements. With the US courts closed during the COVID-19 pandemic, we have seen a substantial amount of claims settle higher than carriers would have reserved for during the few years prior (2018–2020).
• The primary and lead umbrella markets have stabilised; however, options remain constrained in both the US and London. An exception to this rule is on the E&P side of the account following the breakdown of a relationship between an MGA and their capacity provider, which has caused this segment of the market to destabilise. Flat to mid-single-digit rate increases are otherwise common on these layers.
• FAI limits are available for the E&P clientele, but Insurers are selective, and layers need to be carefully structured when putting together the tower. Many towers have been broken down and restructured from scratch, with far greater involvement from the London market than was previously necessary.
• For contractors and oilfield service companies, we have seen an increase in the volume of action over employee bodily injury claims. Significant auto settlements are the other focus for this sub-class.
• Some traditional Marine and Offshore Energy underwriters are cautiously entering the downstream liability market with small quota share participations. While this is increasing the capacity available, we are still seeing mid-single digit increases.
• Insurers are looking for mid- to high-single-digit increases for the middle excess layers as a starting point; however, exposure metrics continue to increase following a stable commodity price environment, and as such, technical reductions are available for insureds with favourable loss records.
• Insureds with operations in Louisiana are being asked to demonstrate they are properly managing their additional insured certifications in relation to the Louisiana Anti-Indemnity Statute; this is following significant losses that would have otherwise been avoided had the necessary additional insured status been issued.
• High excess liability limits are seeing mid- to high-single-digit increases, but similarly to the mid-excess layers, where exposures are up significantly, technical reductions may be available.
• Overall, there seems to be a sense of price adequacy.
  
  
  
  

International Energy Casualty

• Following multiple years of significant rate increases, Insurers have now softened their stance, and we are seeing flat to low single-digit increases for most buyers. Insurers are reluctant to lose business, and in some cases, we are seeing reductions to retain what are viewed as the best-performing Insureds.
• We continue to see a shift from some traditional Energy and Marine markets into the international Energy Casualty space as underwriters seek to further diversify their portfolios away from the US. This increase in available capacity is putting pressure on ratings.
• We have seen an uptick in both offshore construction and decommissioning opportunities. The increase in decommissioning activity follows a push from local jurisdictions to enforce operators to dismantle, transport, and dispose of their old sites and equipment. The risk is within appetite, and there are a handful of known leaders in this area of the market.
• Capacity for new oil sands risks is at a premium, and many Insurers will not write any new or additional oil sands risks going forward. Most underwriters are renewing existing oil sands accounts.
  
  
  
  

General Market Conditions

• The uptick in capacity has softened the consequences of claims and economic and social inflation. While there have no doubt been increases in treaty reinsurance costs, for many carriers, the casualty book has outperformed the property portfolios over the past year or two.
• The markets as a whole are stable, and brokers and buyers are able to anticipate their upcoming renewal pricing differentiation in advance, allowing for a smoother renewal process.