Energy Market: Uncertain Times

Is Gulf of Mexico windstorm risk still an insoluble risk management problem? This is the question posed in the latest annual Energy Market Review from Willis. The report notes that fallout from a major Gulf of Mexico windstorm is once again casting a shadow over the energy insurance market in the wake of Hurricane Ike. A full consensus has yet to emerge as to the best way to offer the product, and in the meantime the market for Gulf of Mexico windstorm risk is more confused, volatile and expensive than ever before. Meanwhile, the energy industry is faced with a changing world, Willis says. The financial market meltdown and global economic recession have led to rapidly cooling commodity prices and left the energy industry now facing a very different challenge of maintaining profitability in the face of plummeting demand. As a result energy insurers must find new ways of making up for income shortfalls and sharp decreases in investment incomes in 2008. An increased focus on underwriting profitability is the inevitable result. However, any drive towards a harder market is being tempered by the fact that with little or no withdrawals from the market in January 2009, capacity levels for energy risks have actually increased by about 5 percent from last year, according to Willis. A big question mark therefore hangs over 2009: will competitive pressures take their toll on market discipline as the year progresses? Check out I.I.I. facts & stats on the 2007 and 2008 Atlantic  hurricane seasons.

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