Energy insurers were in a bullish mood as delegates gathered at the critical Baden-Baden reinsurance meeting last week. Their frame of mind didn’t come as a surprise, given all the media speculation on how insurance markets will respond in the wake of hurricanes Harvey, Irma and Maria.
Since September, (re)insurers have been hit with the third major hurricane of the season, Maria, which has added to one of the most significant overall hurricane bills in the (re)insurance industry’s history. It already seems likely that energy insurance programmes with significant Gulf of Mexico windstorm exposures will be impacted.
Some underwriters are doing their best to talk up a significant market turn ahead, including Munich Re’s Dominick Hoare on LinkedIn (“10 Reasons Why 2017 Has Re-Shaped the (Re)Insurance Market”).
So what can we expect from the energy insurance markets? We think it’s still too early to tell. Here are three reasons why:
- Hurricane losses on their own may not be enough to turn the markets. It’s clear that in the immediate aftermath of these storms, the energy markets have become more challenging for brokers and buyers, both of whom have been used to a softening energy insurance market for years. Sounding bullish after the hurricanes is one thing; maintaining a hardening dynamic in the face of an improved upstream energy loss record and continuing record levels of underwriting capacity is quite another.
- The impact of the reinsurance buying season may be clear, but its impact on the direct energy market remains shrouded in confusion. We’ll need to be several weeks into 2018 before we can determine whether what we’re hearing now is the first sign of a genuine turnaround, or nothing more than wishful thinking.
- Overall supply may remain stable in 2018. We believe some major insurers, sensing a hardening market environment, may take the opportunity to scale up their operations, balancing out any potential withdrawals. And if the same amount of capacity continues to be available, simple economics suggest any market hardening will be difficult to sustain in the long term.
Generally speaking, our advice to clients right now is simple: Wait and see how the market dynamics eventually play out once the reinsurance treaty negotiation season is over. Only then will the broking community be in a position to help shape buyers’ risk management strategies for next year. We expect to shed more light on the issue in January 2018.