Ascot’s Kirkby: Capacity returns to downstream energy sector despite losses

Alexander Kirkby, head of the newly formed energy and marine reinsurance unit at Ascot, said the energy market was adequately capitalised, highlighting downstream energy as a line which capital had recently returned to.

According to Kirkby, as of 2022, the downstream sector had struggled for capital following several large losses, such as the Girard Point oil refinery incident, which resulted in a $270 million claim being paid out by insurers.

However, a rise in rates and a tightening of terms and conditions has been fuelling Kirkby’s optimism, which has been reinforced by capital flowing back into the sector.

“In downstream we actually saw a withdrawal in capacity over the last couple of years, mainly down to performance and a few large losses from refinery fires,” he told The Insurer TV.

“But that capacity started to flow in as of last year, as the rates improved and underlying terms and conditions,” said Kirkby.

Kirkby also noted that the upstream sector has had an influx of capital flowing into the sector, despite premiums decreasing in this part of the energy market.

“The upstream sector is at an all-time capacity high and has actually been moving in a divergent direction with the market premium,” he explained.

Nat cat exposure in the energy sector increasing

The increase in nat cat exposure is set to be a continued challenge for the energy sector, according to Kirkby, due to the increased frequency and severity of the events.

“When we look at the last couple of years, we've noticed a real increase in worldwide catastrophe activity [in the energy sector].” said Kirkby .

Kirkby singled out wind in the Gulf of Mexico as a peril the energy industry should be particularly concerned about. The risk seems likely to grow as sea temperatures rise due to climate change, which is also linked to the increase in tropical cyclones.

“Looking at the upstream sector, Gulf of Mexico wind has always been a hot topic, certainly around the volatility around the product, the clash of the property catastrophe market,” said Kirkby.

Kirkby also noted that solar farms were increasingly susceptible to losses from hailstorms.

This aligns with research compiled by GCube last year, which outlined hail as responsible for nearly 70 percent of total incurred insured losses between 2018 and 2023 at solar farms in the US, despite only comprising 1.4 percent of total claims.

“When we look at solar farms, we've seen some increase in hail activity, and windstorm activity increasing as well.” siad Kirkby

Kirkby also added that the energy sector had experienced significant losses in both downstream and upstream facilities due to earthquakes.

“So we've had a look at earthquakes within Turkey, and Papua New Guinea, cyclones within India, and all three of these leading to significant large losses within the upstream and downstream sector,” he added.

Watch the full 6 minute interview with Alexander Kirkby to hear more about:

  • The importance of energy security in the push to decarbonise
  • How the reinsurance can help renewable energy projects scale
  • How global supply chain issues affected the energy reinsurance space