A major power station loss in Australia and another incident in the US are likely to wipe out what was expected to be an improved annual loss record in the international power market, Willis Towers Watson says.

Those losses may have a significant impact on rating levels moving into 2021, the broker says in its Power Market Review for 2021.

“As this review went to press we were expecting the 2020 final loss total to be modest enough for insurers to record a small margin of profit” the report says. “Although as we look to 2021 we have just been advised of two major incidents, one in Australia and the other in the US, that are likely to amount to nearly US$500 million ($665.07 million).”

The power station loss in Australia is believed to be reserved by the market in excess of $100 million, WTW told insuranceNEWS.com.au. It did not specify where or when the incident took place.

But in May three units went offline after an explosion at the Callide coal-fired power station in central Queensland. Multiple transmission lines tripped and mass power outages were experienced in population centres from Brisbane to Cairns.

WTW says the loss record for 2015-18 was “one of unremitting gloom for [energy] insurers”, with overall losses constantly outstripping the five-year annual premium income average.

The two “highly significant losses already in 2021” may impact "more negatively than previously thought,” it said.

WTW says rating increases are now averaging between 15-20% for power market property programs, depending on risk profiles, premium income volumes, loss records and, increasingly, environment, social and governance (ESG) criteria.

“This represents a slight easing of the hard market but is still far removed from any actual turnaround in rating levels,” it says.

WTW Head of Natural Resources Australasia Matthew Frost says there has been a directional change by insurers with a move to a ‘carrot’ approach to climate change rather than the ‘stick’ of withdrawing from underwriting areas such as thermal coal or oil sands.

“Now the mood is more proactive with talk about companies being incentivised to get to their stated climate change goals,” Mr Frost said.