What counts as energy risk

Energy reinsurance covers the entire industry cycle. Oil and gas production: drilling, fields and offshore platforms, including control of well risk. Transportation: trunk pipelines, terminals and storage. Processing: oil refineries, gas processing plants and petrochemicals. Generation: thermal, hydro and nuclear power plants, solar and wind farms, and power grids.

Reinsurance covers property, business interruption, machinery breakdown, construction and erection risks of new facilities (see construction and erection insurance), and liability for damage to the environment and third parties.

Why the line is special

  • Huge concentration of value. A single plant or platform is worth so much that no insurer can retain the risk alone.
  • Severe scenarios. An explosion, fire or blowout can destroy a unit entirely and halt output for months.
  • Business interruption. Lost profit is often comparable to the property damage and sometimes exceeds it.
  • Engineering expertise. Price and terms depend on the quality of the engineering report, the condition of equipment and the safety culture.

How protection is built

Large energy risks are most often placed facultatively or through specialized treaties with high limits. Insurance is often arranged through co-insurance among several insurers and through captive insurers of large industrial groups, which then cede the risks to reinsurance. Captive retentions are protected by excess of loss cover. The key indicators for a reinsurer are estimates of the maximum possible and probable maximum loss, recovery times and spare capacity.

For nuclear risks, Russia, like many countries, uses a pool mechanism: the Russian Nuclear Insurance Pool, which brings insurers together to accept such risks jointly.

Renewables and grids

Solar and wind farms differ from conventional generation: value is spread over a large area, but a farm is vulnerable to hail, hurricane-force winds, icing and fires. The technology risks of new equipment matter too, since serial defects can affect many units at once. Power grids and substations are insured taking into account their length and natural hazards. The key questions for a reinsurer here are accumulation in one territory, serial loss terms and spare-part delivery times.

How a reinsurer assesses a site

The standard package includes an engineering report describing processes, equipment and protection systems, worst-case loss estimates, the history of accidents and losses, maintenance and emergency response plans, and information on spare capacity and recovery times. The more complete and recent the information, the more reinsurers are willing to consider the risk and the more accurate the price.

Practice in Russia

Reinsurance is governed by Article 967 of the Civil Code and Law No. 4015-1, and the regulator is the Bank of Russia. JSC Russian National Reinsurance Company (RNRC), founded by the Bank of Russia, participates in programs: insurers must offer it a share of the risks they cede to reinsurance (50% of the ceded obligations as a general rule), and the risks of sanctioned persons are ceded to RNRC. This is especially important for energy, where many large companies are under sanctions.

Since 2022, the international energy market where the largest Russian risks used to be placed has practically closed to them. Capacity is now assembled from shares of Russian insurers, RNRC, Russian reinsurers and reinsurers from countries that have not joined the sanctions. The result is higher retentions and deductibles, sublimits for business interruption and greater attention to risk reduction at sites.

What matters

  • Recent engineering reports and implementation of the surveyor's recommendations.
  • A correct estimate of reinstatement value and the business interruption indemnity period.
  • Exclusions and sublimits: wear and tear, corrosion, gradual pollution, sanctions-related risks.
  • Accumulation: several sites of one client in the same natural hazard zone.

How Polis Re helps

Polis Re specialists help prepare the information package for a site, select reinsurers and reinsurance intermediaries with energy experience, compare terms and support the placement. Definitions are in the insurance glossary. Submit a request to discuss a risk.