Energy Market Update: Downstream

As 2021 drew to a close there were certainly signs that we were nearing the end of the hard market cycle, particularly for those insureds with good loss records and engineering, and where Nat Cat exposures can be managed.

Underwriting discipline largely remains intact, particularly with management scrutiny in this class meaning that we’re not yet at the stage of rate reductions being offered but we do seem to have reached a levelling off where flat to single digit rises can be achieved. However, for those insureds with a combination of poorer loss records or located in heavily Nat Cat exposed areas, double digit rate rises are still being seen.


Capacity and Premium

Through the first quarter of 2022 capacity has remained broadly stable, we would estimate realistic capacity available is in the region of USD4bn for international programmes and USD2.5bn for North American. The amount of capacity available has helped to prevent lead insurers from imposing harsher terms in the last couple of years than there would have been had capacity in this class reduced.

Although pricing conditions are improving for most insureds as we have described above, there continues to be a push for tightening of terms and conditions where possible. We have seen this in three main areas: Testing and commissioning with the push for the new LMA5197A Clause; the reversion to the Cyber Exclusion Clause NMA2916A over LMA5400; and in relation to Business Interruption values with the new LMA5515 Clause.

With the prospects of an improving COVID-19 situation around the world, onsite engineering visits are expected to increase. It remains to be seen whether this will have an impact on the perceived quality of the engineering at certain locations following the last two years when insureds and insurers alike have had to adapt to ‘virtual engineering’.


ESG and Energy Transition

There continues to be an ever greater focus on Environmental, Social and Governance (ESG) issues across the globe and this will undoubtedly impact on almost all fossil fuel programmes sooner or later. Many insurers, through corporate requirements, are under great pressure to review their downstream portfolio with a particular emphasis on the ‘E’ of ESG. There is currently no market consensus on how the downstream market will be impacted in the years to come, what we can say is that we expect insurers to require more focus on their clients’ ESG policies in order to demonstrate to their own management and shareholders that they have taken this into account when determining the balance of their portfolio.


Glyn Davies

Head of Downstream | Energy, Power & Renewables

+44 7957 776395 

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Glyn began his career at Jardine Insurance Brokers International Limited in 1994 where he worked in the Energy Division and gained experience in all areas of the business from Broking and Account Management right through to Policy Wordings and Claims Settlement. In 1999, Glyn moved to the Energy Division of Aon Ltd where he worked as an Account Executive for various large North American and Latin American Clients. Glyn was promoted to the role of Director in 2008 of the then Aon Natural Resources and Construction Division. He joined Alesco Risk Management in August 2009.

Over the course of Glyn’s 28-year career, he has gained valuable experience in all areas of the business including, Onshore and Offshore Energy and Power risks (both Construction and Operational), Hull and Cargo, Marine Liability, Control of Well, Employers Liability and Business Interruption programmes. Glyn has experience in providing Technical skills for Energy and Power clients, including programme design and marketing strategies, and all aspects of day-to-day client servicing.