Energy transition being accelerated by events in Eastern Europe

Rhea-AI Summary

WTW's Energy Market Review 2022 emphasizes the urgency for managing energy transition risk amid geopolitical uncertainties, particularly due to events in eastern Europe. The report highlights the rising demand for alternative energy sources post-COVID-19, alongside volatile commodity prices and inflationary pressures. Despite some easing in the hard energy insurance market, WTW advises firms to refine their ESG strategies and monitor underwriting trends carefully. Key data includes a record total global capacity of nearly US$9.4 billion for upstream capacity, and profitability returning across most energy sectors.

Positive

• Most Energy lines of business returned to profitability in 2021.
• Total global upstream capacity reached a record of US$9.4 billion, an increase from US$9.25 billion in 2021.
• International liability capacity increased to US$2.9 billion, from US$2.6 billion in 2021.
• Some rating levels are stabilizing with less significant increases compared to 2021.

Negative

• Concerns remain regarding premium income depletion due to sanctions and geopolitical tensions affecting energy markets.
• Absence of fresh underwriting leadership is hindering market dynamics.
• Insurers are reluctant to make significant changes, preventing a wholesale softening of the market.

Geopolitical uncertainty creating increased need for transition risk management, outlined in WTW’s annual Energy Market Review 2022

LONDON, April 05, 2022 (GLOBE NEWSWIRE) -- The need to manage energy transition risk is being accelerated by the requirement to seek alternative sources of energy to oil and gas following events in eastern Europe, according to WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company, at the launch of its annual Energy Market Review.

The report also covers the volatility of the energy sector, with commodity prices surging to record levels arising from higher demand as economies emerged from the COVID-19 pandemic, as well as a concern around higher inflation rates. However, the report also highlights that, although hardening conditions in the Energy insurance markets are easing, energy companies will need better data, more convincing ESG strategies and careful monitoring of underwriting trends to manage any future market volatility.

The Report also outlines the following developments in the Energy insurance markets:

• Upstream capacity: total global capacity for 2022 has reached yet another record level, now standing at nearly US$9.4 billion, up from US$9.25 billion in 2021.
• Downstream capacity: For International (non-North American) business overall capacity now totals US$6.3 billion up from US$6.1 billion in 2021, while for North American risks total capacity has now increased to US4.1 billion, from US$4.0 billion in 2021.
• Liability capacity: International Liability capacity has now increased to US$2.9 billion, up from US$2.6 billion in 2021
• Profitability: In general terms, most Energy lines of business returned to profitability in 2021, resulting in an easing of the ongoing hardening market conditions.
• Rating levels: In all lines of business, rating level percentage increases are significantly less than in 2021 and in some cases “flat” (or even better) renewal terms are now being secured. However, a combination of factors is preventing a wholesale market softening, including restricted insurer leadership options and concerns regarding the effect of the situation in eastern Europe on premium income streams.

Graham Knight, Head of Global Natural Resources, WTW, said: “At the moment, the scales are finely balanced in all our markets; on the one hand most portfolios have returned to profitability, while on the other, the absence of any fresh underwriting leadership and a reluctance of insurers to “break ranks” is preventing brokers from forcing through any fundamental changes in market dynamics. How the markets react to premium income depletion as a result of sanctions and a short term increase in fossil fuel activity remains to be seen. In the meantime, the energy transition will wait for no one; every risk manager involved in the industry will need to address the uncertainties arising out of both the new geopolitical landscape and the mounting momentum towards achieving Net Zero emissions targets.”

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

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Learn more at wtwco.com.

Media contact

Sarah Booker: +44 7917 722040
sarah.booker@willistowerswatson.com

FAQ

What does WTW's 2022 Energy Market Review highlight about energy transition risk?

The review emphasizes the increasing need to manage energy transition risk due to geopolitical uncertainties and the push for alternative energy sources.

What is the total global upstream capacity reported by WTW for 2022?

WTW reports a record total global upstream capacity of nearly US$9.4 billion for 2022.

How have energy lines of business performed financially according to WTW?

Most energy lines of business returned to profitability in 2021, contributing to easing hard market conditions.

What are the challenges facing the energy insurance markets mentioned in the report?

Challenges include concerns over premium income depletion due to sanctions and the absence of new underwriting leadership.

How did the capacity for liability coverage change from 2021 to 2022?

International liability capacity increased to US$2.9 billion in 2022, up from US$2.6 billion in 2021.