Energy market ‘disconnected from risk’ as soft conditions persist, says Willis

The global energy insurance market is being shaped by a “striking contradiction”, according to Willis, with rising losses and volatility failing to dislodge deeply soft market conditions.

In its latest Energy Market Review, the broker describes a market defined by abundant capacity, intense competition and continued downward pressure on rates, despite mounting loss activity and macroeconomic uncertainty.

Upstream capacity has reached record levels of more than $10bn, with further growth expected from new entrants and broker-backed facilities.

While loss activity, capital reallocation and volatility could slow the pace of softening in the near term, Willis says there is no clear structural catalyst to drive a sustained turn in pricing.

Losses rise, capacity follows

The downstream segment illustrates the paradox most clearly, Willis suggested.

Gross losses reached $6.8bn in 2025, with further deterioration from late-year and early 2026 events.

Yet capacity continues to expand, with new entrants across both MGA platforms and Lloyd’s markets maintaining competitive pressure.

This dynamic is keeping pricing soft even as the loss environment worsens, reinforcing what Willis sees as a disconnect between underlying risk and market behaviour.

“Deteriorating loss trends, whether from heavy downstream refinery losses, upstream construction tails or liability claims inflation have not yet driven corrective hardening,” said Rupert Mackenzie, global head of natural resources at Willis.

“Loss severity remains insufficient to counteract broader industry capital oversupply, arguably leaving pricing disconnected from underlying risk,” he added.

Liability concerns and geopolitical risk

International liability business remains broadly profitable, supported by strong capacity and competition.

However, Willis highlights growing structural concerns, including the spread of global litigation, inadequate reserving and rising claims costs above standard inflation.

Despite these pressures, market conditions remain favourable for buyers, with no immediate signs of hardening.

This reflects the same core dynamic seen across energy lines: capacity continues to outweigh risk signals.

Recent tensions in the Middle East have sharpened attention on exposure across the energy sector, particularly given the concentration of assets and infrastructure in the region.

However, Willis notes that it is still unclear whether the ongoing conflict will translate into significant insured losses for the operational energy market.

As a result, geopolitical risk has yet to act as a meaningful catalyst for pricing change.

Buyer advantage, for now

For insureds, the current environment remains attractive, but Willis warns that volatility in commodity prices could introduce additional complexity.

“With commodity price volatility potentially an ongoing issue in the coming quarter, we would urge buyers to review their business interruption declarations to ensure they can make a full recovery should an event occur,” Mackenzie said.

At the same time, brokers are emphasising the importance of risk quality and engagement as differentiators in a competitive market.

For now, the energy market remains firmly in buyers’ favour, even as the underlying risk environment continues to deteriorate, Willis emphasised.

Marie Reiter, global head of broking strategy, natural resources at Willis, added: “Clear risk data, flexible placement structures and strong broker-to-market relationships remain essential differentiators to create resilience and stability for energy companies in readiness to withstand unexpected shocks and future upturns in the market environment.”