Energy sector highly attractive to capital providers, profitability a challenge for insurers: Willis

With capacity at an all-time high, the energy insurance market continues to soften, driven by a delicate balance between profitability concerns and the pursuit of market share, a recent Willis report has stated.

According to the Energy Market Review report, the downstream market has seen a gradual increase in rate reductions following a benign loss record in 2024, with markets quickly forgetting the many years of poor performance that preceded it.

“There has already been significant loss activity in Q1 2025 with $1.5 billion of potential losses, more than the entire 2024 year, which could impact the direction and pace of further softening in the year ahead,” analysts explain.

Adding: “As the market continues to shift, downstream energy companies can leverage soft conditions to manage volatility and those more focused on rate optimisation can stand to benefit from heightened insurer competition for top-tier business.”

Moving on to the upstream market, the report noted that its capacity growth of around 5% has been driven by a quiet year for losses and continues to fuel a soft market.

Willis analysts state: “Insurers are under continued pressure to grow their market share, putting pressure on signings even when core business is placed at a significant reduction and more underwriters are willing to take on leadership roles, further driving pricing down.

“Insurers are writing so much construction business that many have already filled their 2025 budget, despite this having been the worst performing part of the portfolio historically, suffering from a particularly poor loss record.”

The report also noted that while international liability markets have been in profit for three years out of ten, with the last two reporting consecutive years of profitability, the US casualty market remains the exception in an otherwise softening market.

Moreover, social inflation remains “stubbornly on an upward trend. Settlements are expanding in both size and scale, and carriers in all segments are increasing their scrutiny on limits deployed and premium charged.

The North American energy casualty market is experiencing varying conditions. While primary liability has a stable outlook, the oilfield services segment continues to face challenges due to higher loss frequency and severity.

No changes in market dynamics are expected in 2025, according to the report.

Rupert Mackenzie, Global Head of Natural Resources at Willis, said: “With energy generating significant premium volumes, the sector remains highly attractive to capital providers, fostering increased competition among insurers.

“As underwriting teams sharpen their focus on risk selection, we are seeing a clear “flight to quality”, where the most desirable risks secure the best terms. However, profitability remains a critical challenge for insurers.”

The report also highlights the growing importance of energy storage for the clean energy transition. As electrification increases, reliable and efficient energy storage is critical for both energy companies and insurers.

These innovations improve grid stability and resilience but also introduce new risks, including supply chain disruptions and safety concerns.

Marie Reiter, Global Head of Broking Strategy, Natural Resources, Willis added: “2025 is a pivotal year for the energy transition. Energy companies that proactively invest in risk management strategies and collaborate with insurers to develop tailored coverage solutions will build the necessary risk resilience to balance short-term investment in fossil fuels with longer-term decarbonization plans.”

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