Trump tariffs may prompt volatility clauses in downstream energy market: McVeigh

By Rebecca Delaney

April 9 - (The Insurer) - U.S. tariffs are likely to have an indirect impact on physical damage and business interruption values in the downstream energy insurance market, with short-term solutions in the coming months including potential volatility clauses, Michel Krenzer, global head of energy at Scor, said in a fireside chat at the launch of Willis’ latest energy market review on Wednesday.

Krenzer highlighted that the landscape remains subject to rapid change, with initial tariffs on Mexico and Canada including crude oil and natural gas, before imports of oil, gas and refined products were later exempted from the sweeping tariffs on the rest of the world.

“We need to talk about tariffs. We can't avoid this subject. It changes quite often. (That was) relief for U.S. refiners, but otherwise it would have been a huge impact,” said Krenzer.

“Having said that, indirectly, margins are going down and demand is going down, and therefore there will be an impact, not only in the U.S. but in the world.”

He continued: “On the petrochemical side, it's the same thing: the margins are quite low at the moment, due in part to oversupply in China. Indirectly, tariffs will have a negative impact on margins, and therefore on our business interruption values and so on. Hopefully we can get some stability at some point.”

Kieran McVeigh, head of downstream energy for Great Britain at WTW, added at the event that the impact on the insurance market will be highly dependent on an individual client basis.

“It's going to be an ever-evolving space, but I think as we sit here today, there's probably going to be some increases on clients' probability of default physical damage (PD) values,” said McVeigh.

“How the insurance world deals with that remains to be seen. With it ever changing, insurance generally doesn't keep up with change that quickly, so insurers and brokers will have to work very closely with their clients to make sure that they declare the right values.”

He added; “I think we'll probably start to see some new products, almost like a PD volatility-type clause, maybe coming into play over the course of the next few months. But it's a difficult one, because it's ever-changing.”

More broadly, McVeigh described the downstream market as “soft to yielding in some places”, with 2024 proving to be a rare profitable year with benign loss activity at around $2 billion, compared to a premium pool of roughly $4.5 billion.

“This is the first time in nearly a decade that it has shown a positive year, and I'm sure there are several underwriters out there who are less than enamoured at the speed with which reductions have crept back into the market,” he said.

“However, as we know, things can change very quickly in this volatile sector, and we've already seen at the start of 2025 some large losses in the refining sector.”

McVeigh continued that with these losses now expected to be reserved at a level greater than the whole of 2024, this would likely already wipe out the year's premium for the class.

Nevertheless, he concluded that capacity within the downstream sector remains “extremely strong” and almost at an all-time high.

“As new capacities enter the downstream market, the result is existing markets have become more flexible with their pricing and overall appetite,” he said. “While working capacity for downstream oil and gas has increased only slightly, the willingness to use this capacity has significantly increased, making complex deals easier to place.”