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Willis: Energy Market Stable But Fragile

The energy market recorded its worst ever year for non-windstorm related losses in 2011 with close to USD 9 billion in combined insured and uninsured total losses according to Willis Energy, a unit of Willis Group Holdings (NYSE: WSH), the global insurance broker.

The latest Willis Energy Market Review shows that, discounting windstorm losses, 2011 was the worst year in recent memory for the energy market following unusually large losses in the Canadian Oil Sands and FPSO sectors.

Energy market capacity continued to increase in 2011 as capital providers sought more stable returns in the volatile global economy. Theoretical upstream and downstream capacity increased by over 10% from 2010.

However, underwriters are deploying this capital selectively and showing greater differentiation in favour of the most attractive business.

The correlation between capacity and rates in the energy market has weakened markedly in recent years, with a significant increase in overall capacity failing to lead to a further decline in rates. Modest rating increases were the norm on upstream business at recent renewals, while the downstream market remains effectively flat, albeit with average rates at their lowest ebb for a number of years.

Alistair Rivers, Chief Executive Officer, Willis Global Energy, commented:

“Conditions in the energy insurance market are stable but fragile. Capacity is at a record level but insurers are deploying it selectively due to past claims volatility.

“Insurers are differentiating even further between the risks they truly value and those they don’t due to the recent losses or lack of underwriting information. It is vital that buyers provide as much information as possible and differentiate their risk profiles to secure optimum terms and conditions from underwriters.

“The offshore market direction remains in the balance as insurers wait for the full picture to emerge on the Elgin platform situation. However, if Elgin is resolved satisfactorily, there is ample opportunity for those buyers that can continue to differentiate themselves from their peer group to obtain much more preferential terms.”

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