Summing up the insurance market for upstream and downstreamenergy risks, a Willis report says a “fragile stability” isprevailing where pricing is flat to slightly up. But Willis saysfactors such as overall market-hardening and the ongoing Eurocrisis could create a more challenging market for buyers.

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For the upstream energy market, which involves exploration andproduction, Willis says modest rate increases are the norm.Capacity in the upstream market has increased to a new recordlevel: Overall levels, says Willis, are nearing the $5 billionmark.

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“In practical terms, we can now say that for the most attractivebusiness requiring the maximum capacity that the market can offer,program limits of $4 billion for operating business and $3.6billion for offshore construction business are now achievable—at arealistic price,” the report says.

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But buyers may not find as attractive of a market as they wouldexpect given this high capacity. “While overall capacity hascontinued to increase,” Willis notes, “it is neither deployed oftennor provided from a wider range of leading insurers. As a result,rates continue to creep upward.”

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The report contends that capacity is increasing partly becauseinvestors cannot obtain better returns elsewhere given the currentglobal-economic environment.

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For the downstream market, which involves refining, selling anddistribution, Willis says rates are effectively flat. More so thanthe upstream market, Willis says the downstream market feels theimpact of recent natural catastrophe and mining losses, “and therecan be little doubt that recent events—including the tragicflooding losses in Thailand—have had a more significant effect onmarket conditions.”

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