As we enter 2024, the Upstream market continues to be in a tussle with profitability and capacity. We are seeing the market tipping in the buyer’s favour, in the same way that it has for insurers own purchase of reinsurance at 1st January renewal date. The dynamics that play out during the reinsurance renewals mirror, in many ways, the client experience of buying insurance, as the treaty market buyers (underwriters) take advantage of better market conditions and capacity. By tasking their reinsurance brokers to obtain better pricing and conditions, the market will now struggle to sell upward ratings to their own client base.

2023 was a profitable year for energy reinsurers and a marginally profitable year for energy insurers. While the market has seen loss activity, much of it has been retained by insurers from the imposed self-insured retentions, or for which they traded rates. Notable losses include an offshore platform and the “EF” risk code sector, which included onshore upstream and midstream sector and onshore control of well. Insurers saw several losses that would have hurt, but for most, these would not have been enough to put the 2023 underwriting year into the red. As previously stated, insurers have come out of 2023 with a marginally profitable year; single-digit rate increases would have been achieved on a blended basis, with client activity, including CAR, resulting in more premium dollars entering the market. Insurers hung on for their signings amidst increasing competition for market share, and as we enter 2024, we think this competition will lean into a softening rating environment for Upstream Energy.

In our Summer 2023 market update, we described the Upstream market as being split into ‘sub sectors’ and, notwithstanding our comments above, we think that will continue to be the case. This split can simply be classed as onshore and offshore exposures. Fixed offshore assets and offshore drilling operations will continue to see an oversupply of capacity which we think will result in rating reductions as the 2024 year of account develops. There is too much appetite and competition for market share on these types of accounts for it not to turn in the client’s favour. The onshore exposures including midstream and E&P will be more challenging as 2023 losses have made these sub sectors, on an isolated basis, less profitable. We expect to see the market having more discipline and holding rate in these sectors, and this being said, we expect to see single digit rises on this part of the book. As activity increases globally, we are seeing more construction taking place from small expansions to large scale developments. More markets are re-entering this space and new leaders are emerging, so we anticipate a continuation of current market rating in this area as capacity and appetite increases. Where underwriters are being pushed back on rate, a key focus will be on policy wordings across all the sub-sectors which they will be trying to tighten up, but with so many market options it will be difficult for them to achieve this in the majority of instances.

As we enter 2024, the 1st January renewals in the Upstream sector were largely flat or at single digit rises, partly because of pre agreed terms on multiyear policies or where brokers have returned to the leaders after heavy signings to improve a client’s deal. As we sit here in January, it is often difficult to advise clients on what to expect in the coming year, but all signs appear to be that leaders will have to offer small reductions to maintain their position as the year develops. The total capacity for 2024 is up from 2023 and there is a keenness from insurers to write more Upstream business and the uniform theme when we talk to insurers is that they have a bigger line to deploy and want to write more business. The compounding effect of this will be too much capacity chasing the premium dollars in the market. The litmus test will be the first reduction in the market where a broker has managed to secure better terms or rate and then is tasked with completing the placement. Where these placements fail to compete, it is a sign that it is incorrectly priced, but in this market, we do wonder whether the market has the conviction to walk away from these renewals as they do not have the confidence of placements failing to complete without them. Markets are being pushed to try to make up for a premium income gap and brokers will take advantage of this dynamic as they too in turn fight for market share in 2024.