By Rebecca Delaney

April 9 - (The Insurer) - The "delicate balance" between profitability concerns and pursuit of market share has driven continued softening and all-time high levels of capacity in the energy insurance market, according to Willis's latest energy market review, published on Wednesday.

The broker said rate reductions are "ramping up" in the downstream market following benign loss activity in 2024, with markets "quickly forgetting" the several years of poor performance that preceded this.

Willis said the first quarter of 2025 saw $1.5 billion of potential losses, more than in the entire 2024 year.

Willis' review said the heightened loss activity in the year to date could impact the direction and pace of further softening for the rest of 2025.

"As the market continues to shift, downstream energy companies can leverage soft conditions to manage volatility and those more focused on rate optimisation can stand to benefit from heightened insurer competition for top-tier business," said Willis.

Elsewhere, a quiet loss year in the upstream market has driven capacity growth of around 5%, which continues to fuel soft market conditions.

The review noted that there is continued pressure for insurers to grow their market share, which in turn has put pressure on signing even when core business is placed at a significant reduction.

"With energy generating significant premium volumes, the sector remains highly attractive to capital providers, fostering increased competition among insurers," commented Rupert Mackenzie, global head of natural resources at Willis.

"As underwriting teams sharpen their focus on risk selection, we are seeing a clear "flight to quality", where the most desirable risks secure the best terms. However, profitability remains a critical challenge for insurers."

The review concluded that the North American energy casualty market faces varying conditions across different sectors. As social inflation "remains on a stubbornly upward trend", the increasing size and scale of settlements is causing carriers in all segments to place greater scrutiny on limits deployed and premium charged.

Therefore, while there is a stable outlook for primary liability, challenges persist in the oilfield services segment owing to higher loss frequency and severity. Willis has not forecasted any change in these market dynamics across the North American energy casualty market for 2025.

The Insurer previously reported that downstream energy losses early in the year had already totalled several hundreds of million dollars following two separate oil refinery fires.

The first claim related to a fire that struck Zaro Energy's Bayernoil oil refinery in Bavaria, Germany on January 17. Two senior marine and energy market sources said provisional loss estimates are approximately $600 million, with the cover placed by Marsh and led by Starr Insurance.

The second claim was in relation to a fire at PBF Energy's Martinez oil refinery in California, which occurred on February 1. Initial insured loss estimates for the Martinez fire suggested that losses could stretch into the hundreds of millions of dollars.