At Miami Reinsurance Week, professionals from across the reinsurance marketplace gathered to discuss the topics shaping the early days of 2025. Sharing insights into some of the key talking points of the week, Ed Cooper (pictured), head of power and energy at Acrisure Re, highlighted the emphasis placed on rate reductions.
“This issue really underscores a fundamental tension in the market,” he said. “Insurers are pushed to reduce premiums due to competitive pressures but are simultaneously under the obligation to ensure profitability.
“The drive for lower rates is potentially leading to a scenario of the ‘bad old days’ where risks are underpriced, making insurers more vulnerable to large losses in the future. If these rate reductions aren't matched by sufficient risk-adjustment mechanisms or a deeper understanding of exposure, it is likely to cause long-term instability for insurers.”
Touching on some of the key trends shaping the facultative space, Cooper noted how the move to vertical or quota share (QS) arrangements signifies a shift in how risk is shared across insurers. “This change reflects a more balanced and manageable way of distributing risk across multiple parties, but it is coming with its own challenges.”
Not all insurers have the capacity to manage these proportional structures, he said, and the ability to offer competitive line sizes could be limited, especially for smaller players. This shift is also making it harder for some insurers to keep up, and it may lead to potential shortfalls or a redefinition of how they participate going forward.
With that in mind, he looked to how reinsurance brokers can differentiate themselves in today’s marketplace. Insurers are looking for alternatives from fac brokers and seeking the most favorable terms to ensure they can stay profitable while adapting to increasingly complex exposures.
“As underwriting strategies evolve, more flexibility and innovation in offering tailored solutions could become crucial in attracting clients,” he said. “Insurers that can provide bespoke and highly customized risk mitigation strategies will likely stand out in a market that demands not only capacity but also creative solutions to address emerging risks.
Turning his attention to the headwinds and tailwinds impacting the energy and power reinsurance segment today, Cooper pointed to the abundance of capacity available in a soft market. “The influx of appetite to win business, alongside the continued growth ambitions of established players, certainly amplifies the level of competition in the market,” he said.
“Whilst advantageous for clients, and providing them with more options, insurers will feel the brunt in margin pressure. As capacity plays out, insurers will feel compelled to lower prices in order to maintain market share, risking thinner margins.”
Cooper said that despite the competitive nature of the current market, significant losses continue to plague the sector. High-profile incidents like the Greek refinery loss and the US battery loss serve as stark reminders that the energy and power sector remains a high-risk environment.
“The trend of larger and more technologically advanced units, coupled with complexities in operations – e.g., lead times for spares and business interruption risks, only heightens the potential for unforeseen events,” he said. “These growing risks are pushing insurers to reassess their approach to underwriting and risk modeling.”
Overall, Cooper said, it’s clear that the energy and power re/insurance market is grappling with several conflicting pressures. On one hand, the race to reduce rates and offer competitive pricing puts pressure on profitability, while on the other, the increasing complexity of risks and the rise of new market entrants are creating a more volatile environment.
“Insurers will need to be particularly strategic - balancing competitiveness with adequate risk pricing and innovative solutions, all while navigating a landscape where the threat of significant losses looms,” he said. “In this context, fac has a great role to play in providing the strategic tool for insurers to retain business, protect against the volatility and help enable the best possible outcome for clients.
“This will allow more focus on effective risk management, operational resilience, and adaptability to market changes as key factors that determine success in this challenging market.”
