Published on 14 December 2022
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Energy Market Update: Power
Published on 14 December 2022
With global inflation continuing to rise; the adequacy of total values is without doubt one of the more dominant topics in any conversation between Underwriters and Brokers right now.
When once upon a time the first question in any renewal negotiation would have been in relation to the loss record, now it is about what has happened to the values. There is a distinct wariness from underwriters in their approach and attitude towards this, which is bred from some recent losses which have caught the market unawares as regards quantum.
Utopian thinking would be that every client carries out a formal valuation but clearly in every instance this is not possible. As a minimum, some considered commentary from the client regarding the adequacy of their values is required. In the absence of this, underwriters are deploying a number of defensive measures which include the imposition of strict average and/or rate inflation. In our opinion, neither of these are an ideal substitute for the client reviewing their own situation in view of the changing global economic outlook and we are working with our clients to help them demonstrate their awareness of this issue.
The other area which is coming under much closer scrutiny is the lead in time for replacement of key items of machinery/equipment. Supply chain issues, which are affecting our everyday lives, are also affecting the availability of key component parts for critical equipment and the knock-on effect on Business Interruption claims having a similar impact.
Standards regarding underwriting discipline and information requirements do remain high. However a good quality renewal presentation including clear thought on values (see above) and also detailed commentary regarding ESG philosophy is being met with a flat to minimal rate increase (Cat Perils dependent) as underwriters start to reward their better quality/ performing clients. There is now an expectation that physical risk inspections are taking the place of the virtual / desktop reports which were being produced due to the global pandemic and we are supporting our clients in this respect.
We are also continuing to see new capacity come into the market which is facilitating ‘competitive tension’, however one area of the market which is not being affected by this is coal. We are working closely with our clients and encouraging them to have a regular dialogue with their carriers. However, there does now seem to be a greater global client acknowledgment of the issues surrounding coal and an understanding that maintaining long term relationships with their capacity providers are key.
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Jon Parker
Jon started his career in 1989 with C E Heath within the International Property division. During his 15 years there, he lived and worked in Mexico in 1996 / 1997 before returning to London to join the newly formed Power Utility team where he specialised in the placement of Latin American power business. At the time of his departure in 2004 he was the Executive Director running the Global Power Utilities team.
Jon had subsequent spells at HSBC (Executive Director, International Property Division specialising in Power business) and Guy Carpenter (SVP, Head of Latin America) before joining the Onshore Energy team at Cooper Gay (now Ed Broking) in 2000. There he worked on Power, Oil and Gas and Mining business across the globe but still maintaining his geographical interest in Latin America. By the time he left to join Alesco in 2021, Jon was the Head of the Downstream Energy Division.
