As the energy insurance market rushes towards year end we thought we would briefly reflect on some recent developments and trends. This could be dangerous as the state of the market is probably more multifaceted than it has been for some considerable time and movements - and here we don’t simply mean pricing - could occur with rapidity.
In general, for property risks capacity remains sufficient for all but a few ‘mega’ exposures and since the latter usually involve ‘Big Oil’, the commercial market often receive orders reduced by significant captive participations and, to a lesser degree, by OIL entries. Brokers continue to use their ingenuity to make best use of the global capacity on offer. While some writers will slightly reduce their capacities for 2012, the aggregate loss may well be balanced by the small number of new entrants and capacity increases. The position in respect of liability exposures remains complex, and there is a clear divide between North American exposures and International risks. The liability sector has much to do, including offering viable products addressing pollution exposures. In general though, with capital providers starved of attractive alternatives, the insurance and reinsurance sectors are still receiving good investor support and capacities do not look under threat.
The situation with two influences - both mentioned in previous editions - is becoming clearer. It is now extremely unlikely that the North Atlantic windstorm season will produce any significant losses to energy underwriters. This is only good news in the sense that major hurricane losses to the energy market would have produced bad news, which would have not necessarily been restricted to buyers of such coverage. With the majority of up front energy insurers’ own reinsurance programmes renewing at year end, and the outcomes particularly affecting attitudes to rating and retention, considerable attention has been paid to the comments of ‘professional’ reinsurers, including at events such as the September Reinsurance Rendez-Vous in Monte-Carlo, and the October get-together in Baden-Baden. Although there has been much talk of rate increases, it does appear that when they are achieved they are likely to be modest single digit rises. For some underwriters increased retentions may be more significant.
As to coverages, presently the main talking point is the proposed revision of the WELCAR 2001 offshore construction policy form. At the start of November, the London Market’s Joint Rig Committee received comments on the draft of their revised wording from oil companies, contractors, their consultants and brokers. We understand that the reactions from these interests were overwhelmingly negative. What the JRC chooses to do now remains to be seen. We will keep you advised. On a more positive note, it now seems clear that Lloyd’s underwriters (and other writers) will continue to underwrite OEE well control, redrilling and pollution exposures on the EED policy form; the threat to the viability of OEE insurance posed by comments from the Performance Management function at Lloyd’s in late July has dissipated.
As always, whatever developments occur in the next few weeks, we will keep you advised, and until we write again we offer seasonal greetings to our clients and contacts and our best wishes for 2012.
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