Published on 30 July 2024

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Power Market Update H2 2024

Published on 30 July 2024

The Power generation market is shadowed by several geo-political stressors, foremost being turmoil from the Russian-Ukraine conflict and the subsequent global rise in inflation, which continues to raise questions around energy security.

More recently, the Israel/Gaza conflict (and the areas of conflict all around the region) has reiterated that supply chain issues and energy security are still very prevalent and capable of causing significant stress to the power generation insurance market. These pressures loom even before we consider the various sizeable losses in the market and the poor year that North American insureds had in 2023.

There have been several recent high-profile moves in the market to new organizations (departures from Travelers in London and Tokio Marine HCC have formed a new power generation team) and the emergence of new MGA’s in both London and international markets.

Nevertheless, there has not been the significant injection of capacity that buyers need to meaningfully suppress the current rating environment. While these changes haven’t quite yet pushed the balance of capacity into an environment beneficial for insureds, it could be a positive sign of things to come.

There are signs of change ahead and hopefully a better buying environment, with some positive signs emerging. A handful of London property markets participate on power generation accounts, largely supporting the non-proportional structures in our placements, and they are in a rapid and significant softening phase, which has helped drive competition. This market saw rapid increases in prices after the 1/1/23 treaty renewals (in particular for Natural Catastrophe capacity), even during a large softening phase. This is great news for our clients who have support from these markets and should help with the overall pricing.

In the years following the pandemic, there has been a real focus on insurers insisting on the accurate reporting of values. In response to this, insureds have increased their efforts toward accurately appraising their assets; markets have seen this, and it has led to a slight softening of expectations from insurers. This is certainly the case where insurers have previously had to price in an ambiguity factor for values that were not up-to-date.

Global capacity for this risk class is still very abundant, with no major exits from the power market in recent months. What’s even better for buyers is that, as more MGAs appear and more Lloyd’s property syndicates consider writing power and wider energy business to supplement premium losses on their direct and facultative books, there will be increased competition that helps to drive down pricing.

Although there have not been any major withdrawals within the last six months, coal capacity is still significantly less than what is available in the wider market, with virtually all the large European reinsurers now not supporting new business.