Published on 06 July 2023

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Downstream Energy Insurance Market Update 2023

Published on 06 July 2023

The expected hardening of the Downstream market has not materialised to the extent that many were forecasting at the turn of the year, and post the Treaty renewal season.

Rate rises are still common but are more often in the +5%-15% range rather than +20% (and above) that some commentators thought likely.

Capacity remains stable with no significant new entrants or withdrawals in the market. From a buyers perspective, although we are generally seeing the small rises outlined above, this must be tempered with a view to the following which are seen as hot topics for markets:

• Insured Values – as a result of Covid-19 restrictions (when it was harder to conduct valuation surveys) and the inflationary pressures seen around the globe, insurers have a keen focus on ensuring that Insured Values for physical damage (PD) and business interruption (BI), are kept up to date; thus ensuring they are receiving the correct premium in relation to the exposure they are covering. For those Insureds who are considered not to be using correct and up to date values, insurers are likely to impose more punitive rate increases.
• More restrictive coverage in relation to Cyber, Strikes, Riots and Civil Commotion (SRCC) and Testing and Commissioning.
• Natural catastrophe (Nat Cat) exposure where, as a result of treaty restrictions, there is less capacity available than 12 months ago.

There continues to be an increased focus on Environmental, Social and Governance (ESG) issues across the globe, which will impact almost all fossil fuel programmes. Many insurers through corporate requirements are under great pressure to review their Downstream portfolio with a particular emphasis on the ‘E’ aspect. At present, there is no market consensus on the issues which will arise and no-one is in a position to predict how the Downstream market will be impacted in the years to come. What we can expect is for insurers to require more focus on their clients ESG policies, in order to demonstrate to their own managements and shareholders that they have taken this into account when determining the balance of their portfolio.

For those programmes deemed to be the most attractive to the market i.e. good loss record, well engineered, less Nat Cat exposure and with significant premium income; we continue to see an over-placement of these risks, leading to a downward pressure on pricing.

At the time of writing, there are no specific sanctions on oil and gas emanating from Russia. There has been a push for policies to include an Excluded Territories Clause (Russia, Ukraine and Belarus) with the main focus being to exclude CBI losses emanating from failure to supply crude or gas from one of the excluded territories.