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Rate Softening in Energy Insurance MarketStalled by First Quarter 2011 Losses

^{Published on 2011-04-08 04:25:33 - Market Wire}
 

SAN ANTONIO--([ BUSINESS WIRE ])--The devastation wrought by the Tohoku earthquake, along with two other major upstream and downstream losses in the first quarter of this year, has stopped the downward pricing trend intheenergy insurance market as insurers take stock of their portfolios, according to a new report from Willis Group (NYSE: WSH), the global insurance broker. However the losses are being counterbalanced by dramatic over-capacity, resulting in a market in limbo, where prices have stopped going down, but arena™t going up, except in specific lines that were the hardest hit by last yeara™s Macondo disaster.

"While this is great news for buyers, what the sheer scale of the Macondo disaster has taught us is that more capacity isna™t always the answer. As an industry, we need to devise new solutions involving the conventional insurance market, capital markets, mutuals and governments."

The annual [ Willis Energy Market Review ], released today at the brokera™s inaugural Willis North American Energy Conference in San Antonio, Texas, found that in addition to the Japan catastrophe, two other losses have contributed to this break in market softening: In January this year, the Willis Energy Loss Database recorded an estimated total loss of over USD 1 billion from a fire at the upgrading plant of a Canadian oil sands operation. In February, there was also an estimated total loss of USD 800 million from Gryphon A, a floating production storage and offloading vessel in the North Sea.

The losses may notbeenough however to deter insurers from continuing to compete for business in a relatively profitable sector, noted the Willis report. According to the broker, capacity is currently at an all-time record level of USD 4.3 billion in the upstream market, while the downstream market is also recording a ten-year high at USD 3.7 billion.

In the report, Willis focuses on the future of well pollution risks post Macondo, saying that the upswing in upstream rates as a result of the disaster has to date been confined to the astand alonea Operators Extra Expense (OEE) market and the Marine Third Party Liability (TPL) market. Willis says that insurers writing these lines of business may now consider the regulatory environment under which deep water drilling operations are conducted as a factor when assessing drilling risks.

Commenting on the findings of the report, Alistair Rivers, CEO of Willis Energy said, aWhile rates in the energy insurance industry have stopped decreasing for the time being, the continued profitability of both the upstream and downstream markets for insurers and the abundant capacity this brings, means that it is still possible for the softening dynamic to re-assert itself as the year progresses.

aWhile this is great news for buyers, what the sheer scale of the Macondo disaster has taught us is that more capacity isna™t always the answer. As an industry, we need to devise new solutions involving the conventional insurance market, capital markets, mutuals and governments.a

Click [ here ] to read the full Willis Energy Market Review.

Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world. Additional information on Willis may be found at [ www.willis.com ].