Climate change risk will have transformative effect on energy sector
Climate change and environmental social governance (ESG) will transform the energy industry risk landscape, Willis Towers Watson said in its annual Energy Market Review report.
The report found that achieving a satisfactory ESG rating will be critical in enabling energy companies to attract and maintain the support of key stakeholders.
Other key findings included:
- Capacity: The upstream market is bucking the general market trend, with theoretical amounts at a record $8.73 billion, up from $8.1 billion last year. Capacity in the downstream market has declined for the second consecutive year, down to $5.978 billion from $6.428 billion in 2019.
- Losses: The upstream market posted only three losses in excess of $100 million in 2019. The downstream market, however, showed a significant number of losses over $100 million, with one major loss “significantly above” $1 billion, according to Willis Towers Watson.
- Rating levels: Rating increases are still modest (2.5%-5% on average) compared to downstream, which featured increases in excess of 20% for nearly every type of program, and significantly more for refinery and petrochemical business, the report said.
- Profitability: The upstream market remains profitable in overall terms. However, premium income levels are low by historical standards, Willis Towers Watson reported. Some subsectors of the market, including offshore construction, have suffered attritional losses. Downstream and liability insurers’ portfolios are still in the red, “and the long road back to profitability is uncertain,” Willis Towers Watson said.