Q3 2021

Regional Updates

Aerial view of wind turbines at sea, North Holland, Netherlands


Offshore wind gets federal legislation boost

There have been some significant legislative milestones in the Pacific region (Australia and New Zealand) over the last quarter, most notably in the offshore wind sector. In September, the Offshore Electricity Infrastructure Bill 2021 was introduced, enabling the Australian government to designate offshore electricity areas in Commonwealth waters more than three miles offshore. The legislation will create a licensing regime to permit exploration, construction, and operation of offshore renewable energy and transmission projects in these areas. The bill provides for the National Offshore Petroleum Titles Administrator to oversee licenses for offshore projects, and the National Offshore Petroleum Safety and Environmental Management Authority will be responsible for operations and safety. There are already more than 10 offshore wind projects planned around Australia, which may improve employment opportunities for many vulnerable to job losses in the coal mining and thermal power sectors as the energy transition accelerates.

Western Australia’s hydrogen economy received a major boost, with the allocation of AUD 61.5 million (approximately USD 45 million) to support the growing industry. The funding will support a number of projects including a new AUD 100 billion renewable hydrogen hub — the largest infrastructure project currently planned in Australia. About AUD 50 million will be used to stimulate local demand for renewable hydrogen in the transport and industrial sectors.

With large-scale renewable energy and hydrogen projects planned across the Pacific region, there could be an insurance capacity crunch on the horizon for mega projects. Integrated components such as BESS are still being viewed by many insurers as prototypical technologies, due to the lack of local standards. Detailed risk engineering reports are proving valuable in assessing the amount and cost of required insurance.


The UK government announced its strategy for the hydrogen industry during the quarter, stating how it will support UK industry to develop an annual five gigawatts of clean hydrogen production capacity by 2030. The strategy includes the launch in early 2022 of a GBP 240 million net zero hydrogen fund for co-investment in early hydrogen production projects, aiming for one gigawatt of production installed by 2025. This announcement is a key plank in the government’s Ten Point Plan for a Green Industrial Revolution and should result in opportunities for placement of insurances for the first projects in 2022.

With the UK hosting COP26 in November, and increasing pressure from activists, the timing of this announcement was no surprise. The government is also under pressure over the approval of the Cambo project, a new oil field development to the north of Scotland, expected to proceed before year-end.

Insurers, too, are increasingly wary of attracting adverse publicity from activists, which has resulted in withdrawal of support for some high-profile projects. Some of these projects may not be able to achieve the same limits of cover available historically. It is becoming standard for insureds to demonstrate their environmental, social, and governance (ESG) credentials and considerations as a requisite for successful renewal negotiations.

Half-year results announced by insurers were generally positive, with combined ratios showing significant improvement over 2020 because of rate increases on nearly all lines of business and an absence of major loss activity. Recent weather events such as Hurricane Ida and Storm Bernd, may result in losses, but the impact on earnings is expected to be low given the exposure of their book for energy and power assets.

The most challenging class of insurance right now is cyber, where a torrent of ransomware claims with a frequency and severity far higher than expected, have impacted insurers. In response, insurers have reduced capacity, narrowed cover, and substantially increased rates on renewals. In this environment, appetite from most UK cyber underwriters for standalone physical damage or business interruption cyber cover is low. Brokers are making every effort to secure the broadest cover possible in existing policy forms.

Middle East & Africa

In a region dominated by national oil and energy companies, there are further signs of privatization as governments look for strategic divestments to raise capital. Saudi Arabia and United Arab Emirates (UAE) are frontrunners in this process, in part to fund their energy transition goals. The private sector is also progressing divestments to rebalance the profile of their asset base, especially where this aids ESG and sustainability goals. There is a noticeable shift towards ESG considerations by insureds and underwriters in the Middle East, as both search for ways to positively differentiate at a risk and corporate level.

Drilling and offshore construction activity has increased following the oil price recovery, enabling some long-planned projects to achieve necessary approvals, most notably in Qatar and the United Arab Emirates. Drilling plans that were put on hold in 2020 have been revived, and marginal fields and other opportunities are being re-evaluated in line with the prevailing economics.

Insurance market capacity remains buoyant, and the continued growth of MGAs in the region has continued. The UAE is increasingly becoming a hot spot for energy and power related risks.

The market trends continue to track global dynamics, and the overall theme of growing appetite, particularly in downstream energy and traditional power, has driven a further flattening of the rates in comparison to the prior year.


Rate increases have stabilized in the downstream market in Asia, though regional underwriters continue to take a cautious approach, reflecting the base rating levels in Asia compared to other regions. Deductible levels remain constant, with a focus on NatCat exposures that invariably affect rates. Insurance capacity levels have remained constant and there has been little claims activity (or loss deterioration) in the last quarter. These trends are likely to continue over the coming months, with underwriters starting to shape their portfolio and prioritize accounts where they have longer-term relationships or have seen minimal claims activity, and where there remains the prospect of further account development.

Similarly, the upstream sector remains stable with no major capacity changes during the last quarter. Operational risk rating has not changed significantly; rating movement remains in the range of 5% to 10%, with potential claims impact of Cyclone Tauktae yet to be seen.

Despite significant losses in the second quarter, coverage for contractor risks has remained steady with limited rate increases; however, conditions may harden through the rest of 2021.

One of the most notable changes over the last quarter has been reduction of capacity in the geothermal segment. A number of international markets have withdrawn, leaving regional markets to fill the gaps, where possible. Frequent losses in producing assets remains a concern for insurers and even loss-free programs have experienced restricted coverage and about rate increases on renewal in the 20% to 25% range.

The offshore construction market within the region continues to harden, with increases in rates and deductibles, particularly for subsea works. While capacity is not reducing, the current volatility is impacting project insurance budgets.

The power market in Asia has shown signs of stabilizing. Premium rate increases started tapering off in the second quarter, a trend that has continued.

Based on third quarter renewals, pricing for loss-free, gas-fired power accounts in Asia increased 15% to 20% on average, and coal-related accounts experienced increases upward of 30%. Enquiries are increasing about captive structures and alternative risk transfer options as companies attempt to address the longer-term cost implications of increasing rates and restrictive conditions. To offset the significant rate increases of the last two years, those affected are now considering reduced coverages, such as lower NatCat sub-limits, reduced policy limits, and higher deductibles.

Some markets are showing signs of softening premium increases for very large, significant premium power accounts. However, insurers are not relenting on deductible levels or their need for tighter policy wordings, particularly for cyber, communicable disease, and non-physical damage business interruptions triggers.

Continental Europe

The European Union (EU) is driving forward the regulatory reforms required for its energy transition agenda to achieve the Paris agreement targets. Through the mega EUR 503 billion “green deal” EU incentives and regulated decarbonization targets and standards are being deployed across the 27 countries. Coupled with funding from various COVID-19 recovery packages, clean energy related projects are underway across the continent.

The investment plans include a wide range of initiatives from energy efficiency renovation grants for residential housing, to infrastructure investments in electric vehicle charging stations, new renewable energy generation, and mega hydrogen clusters. Energy and power operators are now also legally bound to reduce emissions by 55% by 2030 under the “fit for 55” package launched in July. The package included many energy transition measures including revisions to the emissions trading system.

Energy economics are under pressure as Europe recorded an historical peak on electricity prices over the summer, driven by lower wind yields and gas shortages. This pushed up the gas price, as well as the cost of coal and carbon permits, and analysts forecast these conditions to continue throughout the coming winter. Measures and alternatives to balance out the natural gas shortage, and its subsequent impact on prices, are being discussed.

In terms of the insurance markets, some international insurers have closed their European offices and changed their “hub and spoke” underwriting model for energy and power lines by moving expertise or authority to London. This might affect medium size midstream, chemical, and/or power operators, but is unlikely to impact large, integrated European energy companies whose insurance programs are typically geared towards global insurance markets.

There is favorable support for wind and solar projects as renewable energy insurers seek to grow their portfolios. The sector remains profitable for insurers, given the absence of significant NatCat exposures compared to other regions.

The NetZero Insurance Alliance (NZIA) was announced in July, involving eight global insurers and reinsurers. The alliance was convened by the UN Environment Programme and aims to build on net zero underwriting guidelines introduced over the last few years to accelerate decarbonization.


 The insurance market generally began to stabilize in the second quarter of 2021. While rate increases remained the norm, a surplus of available capacity helped to minimize volatility, particularly for loss-free risks. The exceptions to this include NatCat exposed risks, claims heavy programs, and oil sands connected risks, which continue to be impacted by ESG considerations in underwriting. However, insurers remain generally supportive of clients with a strong ESG approach and a commitment to energy transition.

Domestic capacity remains strong across the energy and power sectors, with local insurers competing effectively to maintain market share onshore, particularly for power risks and downstream energy. Clients, particularly those with mature risk management strategies, are showing greater interest in industry mutuals and captive solutions as they look for an advantage in navigating the current conditions. However, social inflation and large plaintiff settlements are contributing to a continued reduction in available capacity for US casualty risks.

Renewable energy remains favorable, with increased interest from new insurers, particularly for utility scale onshore wind and solar projects. New entrants are expected over the coming months, fueled by an increase in the number of projects being constructed and in the pipeline. There has also been an increase in power purchase agreements from companies with net zero commitments, which has accelerated project developments. Hydrogen and renewable natural gas are getting more attention and there are a large number of projects in feasibility stage for both.

There is increased merger and acquisition activity across the region in the traditional oil and gas, and power and utility sectors, often with larger players divesting assets that are now entering the insurance market as standalone risks. This is being driven by net zero commitments and asset optimization strategies.

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