How upstream energy insurance market forces are fueling the fire on (un)profitability (2025)

In this article from the 2025 Energy Market Review, we share observations and outlooks on the insurance upstream energy insurance market, alongside actionable insights to help companies put themselves in a strong negotiating position when taking their risks to market.

At a glance: Upstream energy insurance market trends

• Softening market conditions have accelerated beyond predictions for the most attractive elements of the upstream portfolio.
• Capacity continues to climb and more underwriters are willing to take on leadership roles, driving pricing down.
• Insurers are under continued pressure to grow their market share, putting pressure on signings even when core business is placed at a significant reduction.
• For upstream insurers, the traditional follow-only role is hard to play. An uptick in quoting markets, alongside the resurgence of broker facilities, means that remaining competitive is more important than ever.
• Placements with significant premium volume continue to provide the most opportunity to generate larger rating discounts.
• The premium pool continues to dwindle, only supplemented by construction, but remains small in comparison to the exposures being insured, putting the sustainability of reductions under question.
• Alongside major construction losses, attritional losses have the potential to further deteriorate profitability despite the absence of large market-changing losses within the last 12 months.

Upstream capacity continues to climb

While there are no significant new entrants to the market, pressures to remain relevant and grow market share have added additional capacity of c.$275 million from existing markets, contributing to a general c.5% growth in capacity from last year.

This is creating a contradictory pressure where, despite diminishing profitability of the book, there is no immediate sign that capacity is leaving the market, reinforcing the downward pressure on rates.

A spotlight on upstream construction

“Construction is an area of the portfolio which has suffered from a particularly poor loss record. Paradoxically, construction is also the element of the book that has offered the most genuine new business growth opportunities, particularly in the post-COVID-19 era. During the past 2-3 years, the number of projects achieving final investment decisions and seeking insurance coverage has increased, some requiring significant amounts of capacity. However, this has been accompanied by a spate of losses most of which have been generated from the subsea element of the portfolio. As a direct consequence, we have seen rates increase and available capacity for subsea exposures become significantly restricted. Some placements are also struggling for completion as insurers become increasingly selective in the risks they write.” Paul Braddock, Head of Upstream GB, Natural Resources.

Competitive pricing is creating a race to the bottom of the rate pool

Reductions for offshore operating rates are exceeding expectations, with 5%-10% reductions at the close of 2024 now stretching to 5%-12.5% in some cases.

The market is competitive, but not uniformly. The trend of 5%-12.5% reductions isn’t shared across all subsectors of the portfolio due to their varied loss performance and premium income.

“While meaningful premium on the slip continues to wield the most power over rates and pricing, it is important to balance short-term gains with long-term stability. Solely upstream-focused underwriters are reliant on writing lines on large operating accounts where the premium is too valuable to lose. But for big lead markets that write a diversified natural resources portfolio, they have more scope to be selective on the risks they write without the same degree of premium-driven pressures.” Richard Burge, Chief Broking Officer GB, Natural Resources.

Death by a thousand cuts: attritional losses are on the rise

As rate reductions further erode overall premium volumes, attritional losses from prior years are chipping away at profitability for the upstream book.

While our WTW Energy Loss Database records approximately $1.5 billion in losses for 2024, we expect these to deteriorate further as loss estimates worsen and deferred construction loss activity adds to the totals.

As more and more of the premium-generating accounts receive year-on-year compound discounts, underwriters fear for the profitability of the book as a whole. Despite concerns over unsustainable margins, capacity hasn't withdrawn and it appears the class remains attractive compared to other specialty lines.

Upstream energy terms and conditions remain stable

When there’s nowhere left for pricing to go, broadening of terms and conditions may be the next angle for insurers to demonstrate added value to secure upstream business. Coverage improvements could be of greater value than rate reductions which can be reversed more readily. But for now, insurers’ focus remains predominantly on price adjustments with coverage enhancements on the more distant horizon.

Positioning yourself for success in a soft market

Although premium on the slip continues to wield the most power to influence rates and pricing, upstream energy companies that provide comprehensive risk information and maintain strong relationships with underwriters will attract more interest from the market, leading to better outcomes in terms of coverage and pricing.

Contact our specialists to find out how to leverage the competitive upstream energy market by seeking better pricing, terms and conditions.

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