Published on 15 December 2022
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Energy Market Update: Midstream
Published on 15 December 2022
2022 has seen an increasing interest in the Midstream sector from London Underwriters.
Growing numbers of upstream syndicates are seeking an entry point to the sector, in part to offset lost revenue following the hardening of global sanctions imposed on Russian business.
Offset against the capacity increase is higher attrition of claims from the sector, as well as a number of peak loss events. Most of these peak losses have been held by the downstream segment of the market and as a result we expect to see that part of the market react, further enhancing the upstream offering. Nevertheless, the market environment is driving rating back to increases of 10% on clean business. Accounts that have experienced losses are underwritten on their merits, and client engagement with lead markets is key.
As remarked in previous issues, upstream capacity continues to offer more competitive terms for this sector, particularly ‘in-field’ asset base and the movement of clients from the downstream market remains where appropriate. For growing clients, upstream capacity maintains the mantra of offering credits for scale, something not typically seen in the harder downstream market.
In the industry itself, commodity price rebounds have given a boost to clients who have faced consistent headwinds for several years. It is imperative that clients review their exposures in light of this change, in particular their Business Interruption purchase which may require an uplift to cater for increased revenue. Increasing Business Interruption purchases is likely to become a significant talking point for the markets, in particular the ratio of an insured’s Indemnity requirements versus their Scheduled Values. Underwriters continue to favour clients with a ratio weighted towards Physical Asset purchase and accounts that are heavily Business Interruption weighted are challenging. Equally clients should consider social inflation and supply chain issues when considering their values and indemnity purchases – this needn’t be restricted to review at renewal.
Consistent with global trends and ESG initiatives, there are increasingly more opportunities in energy transition oriented projects, such as Carbon Capture and Storage (CCS), as well as various Hydrogen projects. Upstream capacity has expressed a particular interest in writing CCS within their midstream portfolio and expect to see this become a fast growing sector for new business.
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Matt Byatt
Matt began his career at the JLT Group specialising in energy package programmes with a strong emphasis on North American business. After 14 years, Matt moved to Alesco with a significant development role in terms of new business, placing and implementation of complex programmes worldwide. Matt’s extensive international Upstream marketing and placement experience aligns with clients’ needs, and he will work closely with his broking colleagues and our servicing team, including claims when the situation arises.
