Willis: energy underwriters somewhat deluded

According to Willis, energy underwriters who believe that the softening in the energy market may soon come to an end are suffering from ‘wishful thinking’.

In its August Energy Market Review, Willis reported on feedback from a number of underwriters who felt that some insurers will not be able to bear a continued softening into 2015. They added “that losses are on the increase and that an upward turn in rating levels by next year will be essential if the market is to continue to thrive in the long term.”

Yet, the broker said it thought this sentiment may simply be a mistaken belief from the market. “There are plenty of signs to indicate that not only are some insurers continuing to make money, but that a large proportion of the capital that has recently been invested in the energy market is here for the long-term.

“Indeed, it is now entirely possible that the current soft market conditions may continue to prevail, even if the industry is seriously impacted by a major hurricane in the Gulf of Mexico or other major catastrophic loss during the latter half of the year.”

Willis concluded, “And with OIL introducing an option to increase members’ any one accident or occurrence limit to $400m, competitive pressures in both the upstream and downstream markets seem to be stoked even further.”