Energy Review 03-2018
27 March 2018
Some of the events now occurring in the Middle East and China will remind us of the days of “The Great Game” when England and Russia vied for influence in the area stretching from Persia (as Iran was then known) across to the western parts of China and through many of the “stans”, especially Afghanistan, northern Pakistan and even north-west India. Neither of the two players won outright but England kept Russia out of the sub-continent, and for a while until the demise of the USSR, Russia had a big word to say in the smaller “stans”. Prior to that it was Genghis Khan, Alexander the Great and Tamerlane, as mighty and fearsome rulers whose word was the law in these parts, who sealed a place in history.
At stake in the The Great Game was access to the Persian Gulf and the Indian Ocean. At stake for the Three Gentlemen was income from trade and taxation. We are now seeing a revival of this geo-political manoeuvring: jostling to see who gets first dibs on energy resources, mainly oil and gas, in this vast area. The main players in the New “Game” are China, Turkey and Russia. Chinese President Xi Jinping is to invest US$8 trillion into the Belt and Road Initiative, an infrastructure plan linking a swathe of territory between Western Europe and south-east Asia bringing Asia’s centre of economic gravity to Beijing. Recep Tayyip Erdogan is showing intention to extend Turkey’s influence beyond its borders; once he has worked out how to do this with, as opposed to without, the Kurds, this has every chance of succeeding – tough as it may be for Bashar al-Assad in Syria. And then there is Russia, whose sphere of influence seems to be ever-expending. Messrs Xi and Erdogan can rely on growing economies, but Vladimir Putin is more vulnerable because Russia’s economy is based on hydrocarbons and he does not control the price of oil or gas. Russia might benefit from the oil and gas in Ukraine at the moment but they will need to compete with China if they want to get the “stans” to favour Russia in the long-term as a credible alternative investor in the development of their oil and gas resources.
While the aim of each of these new “Three” is to get at the vast oil and gas resources outside their own country, it is only China who is a real competitor to the United States as a global super-power. If China can boost its economic power through expanding its bank accounts, it will be able to increase its defence budget (currently a little more than a third of that of the USA). All of President Xi’s plans have this projected goal and he does not want anyone standing in his way – from inside or outside his country. It is interesting how access to energy resources can be such a key factor in geo-politics.
In BP’s recently released “Energy Outlook” we read that by 2040 the world could be powered by the most diverse fuel mix ever, with oil, gas, coal and renewables each accounting for a quarter of the world energy. This means that certainly for coal but also for oil and gas, their share of energy is dwindling – albeit slowly. Major corporations are getting more and more serious about renewable energy. Statoil recently made the headlines with its world class performance of the world’s first floating wind farm. ExxonMobil has joined the Stanford Strategic Energy Alliance, an initiative which will examine ways to improve energy access, security and technology while reducing impacts on the environment; this will inevitably lead to a change in direction towards renewables within the next decade.
In the insurance world, debates on decommissioning have grabbed attention. The merger of AXA and XL took many people by surprise. Lloyd’s has made the news with more Syndicates lining up to enter the market. Brexit continues to worry the City of London as financial services still has not taken a priority in the discussions between Brussels and the UK; with just one year to go until the cut-off date of the 29th March 2019 more progress is needed on this issue. The UK prime minister’s recent decision not to back Passporting rights for insurers and banks is just another indication of how out of touch she is with the City.
In our People section there have been some interesting moves. Especially as regards the AXA/XL merger, there will be some more in the coming months. Lloyd’s and several of the other players are now putting together their teams who will represent them in their EU bases and we expect to hear further announcements soon.
For many of our readers in Western Europe, March and its snow and ice-storms are a fresh and unpleasant memory and we wish them and all our other readers a comfortable Spring or Autumn. We trust you find our news informative and we will happily engage with you about any energy insurance needs and requirements.
Papua New Guinea quake kills at least 14; ExxonMobil shuts $19B LNG plant
Up to 14 people were killed in landslides and by collapsed buildings during a powerful earthquake in the remote Papua New Guinea highlands, police and a hospital worker said, with unconfirmed reports of up to 30 dead.
The 7.5 magnitude quake that rocked the region early on the 26th February also damaged mining and power infrastructure and led ExxonMobil Corporation to shut its US$19 billion liquefied natural gas (LNG) plant, the country’s biggest export earner.
The PNG disaster management office said it was verifying the reports but it could take days to confirm a death toll.
With a lack of communications preventing a clear assessment of damage, aid agencies had not yet begun relief efforts, said Udaya Regmi, Head of the International Red Cross in Papua New Guinea, in Port Moresby.
ExxonMobil said communications with nearby communities remained down, hampering efforts to assess damage to its facilities that feed the PNG LNG plant.
Its partner, Oil Search, said a review of all of its facilities and infrastructure would take at least a week, and an industry source told Reuters that the Exxon plant will likely be shut for at least seven days.
The PNG LNG project is considered one of the world’s best-performing LNG operations, having started exports in 2014 ahead of schedule, despite the challenge of drilling for gas and building a plant and pipeline in the remote jungle of PNG.
The liquefaction plant has also been producing at around 20% above its rated capacity of 6.9 million tonnes a year.
ExxonMobil said it shut the two LNG processing units, or trains, at its site on the coast near Port Moresby after earlier shutting its Hides gas conditioning plant and Hides production pads in Hela province in the highlands region.
Gas is processed at Hides and transported along a 700-kilometre (435-mile) line which feeds the PNG LNG plant, whose main customers are in Japan, China and Taiwan.
Oil platform off Texas catches fire
The US Coast Guard responded to a report of an oil platform fire approximately three miles offshore of Corpus Christi, Texas, on the 7th March.
Coast Guard Sector/Air Station Corpus Christi watchstanders received a report of a Magellan-owned platform on fire and launched a Coast Guard Station Port Aransas 45-foot response boat crew to the area.
Once on the scene, the response boat crew established a 200-yard safety zone. There were no persons aboard the platform at the time of the fire and at approximately 6:30 p.m. the response boat crew reported the fire was out.
A team of firefighters, coordinated by O’Brien’s Response Management, arrived on the platform and confirmed the fire was out, as well as no visible signs of pollution.
The Coast Guard said that the cause of the fire was under investigation.
Offshore worker dies on Gulf of Mexico platform
An offshore worker has died on a Gulf of Mexico offshore platform operated by Energy Resource Technology (ERT), a subsidiary of Talos.
The Bureau of Safety and Environmental Enforcement (BSEE) said that it was conducting an investigation into the fatality.
The third-party construction worker died in an area of the Gulf of Mexico known as West Cameron 215A, about 64 miles south of Lake Charles, Louisiana.
ERT reported that the fatality occurred at approximately 10:30 a.m. on the 17th February.
According to the BSEE, the deceased worker was involved in removing firewater piping at the time of the incident. No other personnel were harmed, and there was no pollution as a result of the incident.
The BSEE added that its Gulf of Mexico Region investigators and inspectors began conducting a thorough investigation into the cause of the fatality over the weekend.
Gas leak reported on ONGC rig ahead of explosion which killed five
A gas leak had been reported on an ONGC drillship which was undergoing repairs at India’s Cochin Shipyard but the order to stop the hot works on the rig came too late, resulting in the deaths of five workers.
The explosion happened on the morning of Tuesday 13th February in a ballast tank of the ONGC-owned drillship Sagar Bhushan, which has been dry-docked at the yard for maintenance work for nearly two months.
ONGC stated that the drillship was undergoing mandatory special survey (hull & machinery) repairs as per class requirement.
In a statement issued later on that day, the shipyard confirmed that five people had been killed and seven injured as a result of the incident.
The drillship Sagar Bhushan arrived at Cochin Shipyard on the 7th December 2017 for dry-dock repairs. It was dry-docked on the 12th January 2018, and it was to be undocked on the 28th February. The work completion was scheduled for the 7th April.
The shipyard further detailed in the statement that, at around 09:15 on the morning of Tuesday 13th February, a phone call was received at Cochin Shipyard informing that there was a gas leakage near the AC compartment area of the drillship undergoing repair in the dry dock No 1.
According to the company, immediate instruction was passed on to stop all the hot works.
However, by this time the explosion had occurred in the forward area of ship, near to the AC plant.
In a separate statement on the 14th February, the shipyard said that Shri Radhakrishnan, the Minister of State for Shipping, visited Cochin Shipyard to take stock of the situation on board the drillship Sagar Bhushan.
The minister promised the full support from the Ministry of Shipping in the company’s endeavours to help the families of the affected workers. He also instructed the shipyard to conduct a thorough investigation and find out the root cause and report the details to the ministry.
Gas leak in San Diego prompts evacuation of 1,100 homes
A ruptured gas pipeline in San Diego was capped on the 7th March after the leak prompted the evacuation of more than 1,000 homes and shut down a five-mile (eight-kilometre) stretch of freeway for about nine hours.
A construction worker helping with a road expansion project accidentally drilled into a 20-inch (51-centimetre) pipeline near the Fashion Valley Mall in Mission Valley, a San Diego Fire-Rescue spokesperson said.
Witnesses said they saw gas spewing dust or dirt out of the hole and described a pungent smell which permeated the area, the San Diego Union-Tribune reported.
At least 1,100 homes and a handful of nearby businesses within a half-mile radius of the leak were evacuated. About 3,300 people live in that area. Authorities also closed State Route 163 between Interstate 8 and Interstate 805.
Workers from San Diego Gas & Electric finally capped the pipeline in the evening, although repairs still needed to be made.
Six dead after blast at Czech refinery
On the 22nd March Reuters reported that an explosion killed six people at a refinery in the Czech Republic on Thursday, rescue officials said.
Two other people were taken to hospital with serious injuries, a fire department spokesperson told Czech Television.
The blast occurred at Unipetrol’s plant in Kralupy nad Vltavou about 30km (19 miles) north of Prague.
“There was an explosion at the storage tank but no subsequent fire in the Kralupy refinery,” Unipetrol spokesman Pavel Kaidl said. “The situation is under control and there is no other danger. There was no leakage of dangerous substances.”
The mayor of Kralupy told Czech Television the blast occurred during cleaning of the storage tank.
Unipetrol had been preparing the refinery for maintenance and an upgrade scheduled to run from March 27th to May 9th. The facility has an annual capacity of 3.2 million tonnes of oil.
AXA acquires XL Group in $15.3bn deal
French insurer AXA is acquiring Bermuda-based property/casualty commercial lines re/insurer XL Group for US$15.3 billion (€12.4 billion) in cash.
The price represents a premium of 33% to XL Group closing share price on the 2nd March.
The move will shift AXA’s business profile from L&S (life & savings) business to P&C (property & casualty) business. The deal will enable the group to become the biggest global P&C commercial lines insurer based on gross written premiums, according to a company statement.
The transaction increases diversification of the business, enables higher cash remittance potential and reinforced growth prospects, rebalancing the profile towards insurance risks and away from financial risks, the company said.
“XL Group has the right geographical footprint, world-class teams with recognised expertise and is renowned for innovative client solutions,” said AXA CEO Thomas Buberl.
“Our combined P&C commercial lines operations will have a strong position in the large and upper mid-market space, including in specialty lines and reinsurance, and will complement and further enhance AXA’s already strong presence in the SME (small and medium-sized enterprise) segment. The two companies share a common culture around people, risk management and innovation, positioning AXA uniquely for the evolving future of the P&C industry,” Mr Buberl added.
The opportunity to acquire XL Group has led AXA to review its exit strategy from its existing US operations which AXA now expects to accelerate. Together with the planned IPO (initial public offering) of AXA’s US operations (expected in the first half of 2018 subject to market conditions) and intended subsequent sell-downs, this transaction would gear AXA further towards technical margins less sensitive to financial markets.
The XL acquisition will be financed by around €3.5 billion of cash at hand, around €6.0 billion from the planned US IPO and related transactions, as well as about €3.0 billion of subordinated debt. There is also $9 billion of backup bridge financing already in place.
Upon completion of the transaction, the combined operations of XL Group, AXA Corporate Solutions (AXA’s large commercial P&C and specialty business) and AXA Art will be led by Greg Hendrick, currently the President and Chief Operating Officer of XL Group, who will be appointed CEO of the combined entity and join AXA Group’s management committee, reporting to Thomas Buberl.
Greg Hendrick will work closely with Doina Palici-Chehab, AXA Corporate Solutions’ Executive Chairwoman, and Rob Brown, AXA Corporate Solutions’ CEO, to build an integrated organisation and leadership team for this new company.
Following the closing, Mike McGavick, XL Group’s current CEO, will become Vice-Chairman of the combined P&C commercial lines operations and special adviser to Thomas Buberl to advise on integration-related and other strategic matters.
Mike McGavick said, “Today marks an unrivalled opportunity to accelerate our strategy with a new strength and dimension. With every confidence in how we have positioned XL Group for the future, it is a substantial testament to AXA’s leadership and commitment to maintaining the XL Group brand and culture that we have come to an alignment.”
“We are excited at the opportunity to build the scale, geographical footprint, product portfolio, and the unmatched commitment to innovation that relevance in the global insurance industry requires. In AXA we have found like-minded partners committed to the absolute necessity to innovate and move this industry forward,” he added.
PartnerRe transfers upstream energy insurance portfolio to Ark Syndicate
Bermuda-based PartnerRe has revealed that it will exit the upstream energy insurance market having signed a deal to transfer its book of business to Ark Syndicate Management.
The reinsurer said the move is in line with its intention to become a pure-play reinsurer and not compete with its clients on the primary side.
Its upstream energy insurance portfolio will be transferred to ASML Syndicate NOA 3902.
The agreement relates to applicable policies incepting and written on or after the 1st January 2018, alongside renewal rights for policies renewing subsequent to that date. PartnerRe said that it intends to maintain ongoing participation in the portfolio as reinsurer to Syndicate 3902.
The reinsurer’s CEO Emmanuel Clarke said, “I am pleased that PartnerRe and Ark Syndicate Management Limited have entered into this agreement. I believe that this will be a successful partnership with a quality organisation and one that will provide continuity for our clients and brokers.
“The decision to transfer the portfolio aligns with our overall strategy to focus on reinsurance and reinsurance-like solutions which don’t compete with our clients.”
Ian Beaton, CEO of ASML, said, “We are delighted to have reached this agreement with PartnerRe. We have a longstanding and valued relationship with PartnerRe and this transaction allows ASML to strengthen its proposition in upstream energy insurance. ASML is privileged to be aligned with such a high-quality reinsurer.
“We look forward to working closely with our policyholders and brokers in order to effect an orderly transfer in the near term and, over the longer term, in providing meaningful capacity, underwriting and claims capability to upstream energy customers.”
PartnerRe continues quest to be pure-play reinsurer, the Insurance Insider reports
PartnerRe’s transfer of its upstream energy insurance portfolio continues a strategic refocus on reinsurance that the company embarked upon after being acquired two years ago.
Agnelli family fund Exor completed its $6.9bn acquisition of PartnerRe in March 2016 after winning a bidding war with AXIS Capital in August 2015.
Exor repeatedly made clear that it was attracted to PartnerRe because it offered a pure-play reinsurer, with its refusal to compete with its client base a core part of its competitive advantage.
As a result, PartnerRe has either shed assets that do not serve the reinsurance mission or has made acquisitions that do.
Is the strategic refocus on reinsurance working?
PartnerRe fell to a $28mn operating loss for the fourth quarter that included a $120mn hit from California wildfires. By contrast, the reinsurer reported operating earnings of $125mn in the same period of 2016.
The company’s non-life combined ratio picked up 12.1 points from the California wildfires as it deteriorated to an unprofitable 100.7% in the quarter from 89.6% in Q4 2016.
But Clarke sees bluer skies ahead, noting when announcing 2017 fourth quarter results that 2018 started “on a very positive note”, with a strong 1st January renewal that included double-digit rate increases for North American property cat and improving profit margins in other specialty and P&C segments globally.
Is it time for an offshore marine decommissioning product?
Dennis Culligan, risk, insurance and claims management consultant, feels there remains a worrying lack of consensus over the extent of liabilities relating to the decommissioning of offshore assets and whether existing covers cater adequately for the risks
The latest Decommissioning Insight, published by trade association Oil & Gas this month, highlights that from 2017 to 2025 decommissioning is forecast to take place on 349 fields across the four regions of the North Sea, including six fields on the Danish Continental Shelf, 23 on the Norwegian Continental Shelf (NCS), 106 on the Dutch Continental Shelf and 214 fields on the UK Continental Shelf (UKCS).
These figures include more than 200 platforms with close to 2,500 wells expected to be plugged and abandoned and nearly 7,800 kilometres of pipelines forecast to be decommissioned. The figures attached to these initiatives highlight the costs. Decommissioning as a proportion of the total UKCS expenditure was 7% in 2016, when the market was worth £1.2 billion (US$1.6 billion). Operators forecast this figure will rise to 11% (£1.8 billion) for the last 12 months. The complete spend on decommissioning on the UKCS alone from now until 2025 is put at £17 billion. Of that figure, £7.9 billion (46%) of the total UKCS spend from 2017 to 2025 will be concentrated in the central North Sea.
It has prompted the UK government to unveil a new transferable tax history (TTH) scheme, which will come into effect from November this year as part of its efforts to encourage merger and acquisition activity in late field life assets, where decommissioning costs have hitherto discouraged new entrants. But this remains a global offshore concern not only in the North Sea, but also the Gulf of Mexico and south-east Asia. It has been estimated that more than 50% of Indonesian platforms are more than 20 years old at present.
Falling prices since 2014 have exacerbated the pace towards the end of economic field life in multiple locations, but the resulting cashflow squeeze has made funding for abandonment much more onerous, stretching both company balance sheets and the credit ratings of many offshore operators.
Notwithstanding the recent oil-price rally, the issues around abandonment funding remain a significant challenge. For insurers, there are several challenges around how they can assist clients to mitigate risks surrounding decommissioning. Decommissioning has been carried out on a substantial basis for over two decades but there is not yet an established insurance practice regarding coverage for the risks involved. This contrasts markedly with construction or operational risks in the upstream energy sector.
One factor hindering efforts to create workable insurance solutions is the lack of consensus over the extent of liabilities and whether existing insurance covers available cater adequately for the decommissioning risk. The breadth of the type of assets and the environment in which they are placed at present creates a significant spread of risk factors and no two decommissions are the same. However, can we truly believe, in terms of decommissioning, it is a case the risk profile is simply contractor’s all-risks in reverse?
As an industry, we must ask whether the policies which are available at present to clients with offshore interests adequately meet the needs of the sector. Some insureds and insurers take the view, however, that operating phase operator’s extra expense (OEE) legal liability and removal of wreck covers offer sufficient protection for the full range of decommissioning activities.
This may be an unwise assumption, however. Take one example – removal of wreck/debris insurance limits. Under a conventional energy package policy, these are often set at 25% of the declared value of a structure. How will this work if the value of the structure itself is written down to zero or a nominal value for the decommissioning phase?
The insurance market can play a significant role in two very different ways. First, by offering an alternative form of long-term security to ensure abandonment funds are available when required. The second, and more straightforward issue, is by covering the conventional insurance risks associated with the decommissioning process.
It also raises the question whether tailored specific insurance products are required to match the risk exposures inherent in offshore decommissioning. The marine energy insurance sector has a justifiable reputation for innovation, so it is surprising that there have not been greater efforts in the past to establish a decommissioning insurance product.
A major hurdle is convincing clients to spend money on covers which will mitigate risk on structures and facilities which have little or no residual value. This leads, in turn, to the question as to whether sufficient premium volume could be generated to make stand-alone products a viable option for insurers. Without doubt, the level of decommissioning activity will increase in the future, as will the sums expended on the process. The question remains for insureds and insurers whether there is the opportunity to tailor products to meet a growing need, or does the market already have the risks under cover?
Cyber driven business interruption threatens energy sector
Energy executives are increasingly concerned about the impact of cyber-attacks on their operations, according to a leading insurance broker.
Over three-quarters (76%) of respondents to a survey cited business interruption (BI) as the most concerning consequence of a cyber-attack for the energy industry.
The report looks at the most concerning cyber loss scenarios for energy executives, the industry’s understanding of cyber exposures, and how organisations plan to manage these risks in the future.
Despite more than half of energy executives naming cyber as a top-five risk, 54% of energy executives have not quantified or did not know what their worst possible loss exposures could be.
Of the energy executives participating in the survey, 26% said they were aware that their company had been victim to a successful cyber-attack in the past 12 months.
The energy industry plans to invest more in cyber risk management, with 77% of energy executives surveyed saying their organisations will increase levels of investment in cyber risk management, while 26% plan to purchase or increase their cyber insurance.
“As the energy industry relies more on interconnectivity as a result of greater digitalisation, the potential for cyber-attacks to cause severe disruption to operations, loss of data, and, consequently, high financial losses, should be a key concern for energy executives,” a spokesperson said.
“While it is encouraging that three-quarters of respondents plan more investment in cyber risk management, it is worrying that over half questioned have yet to quantify their exposures.
“For those firms that have not put plans in place to mitigate and manage attacks or have not measured their cyber exposure, now is the time to take steps to be prepared for the impact an attack could have on their operations and systems.”
A.M. Best reveals Brexit contingency plan with new EU base
Re/insurance sector rating agency A.M. Best is establishing a new office in Amsterdam during 2018 as part of its Brexit contingency plan.
A.M. Best, through its London-based subsidiary A.M. Best Europe Rating Services, is currently registered with the European Securities and Markets Authority (ESMA) in Paris, which allows it to provide rating services throughout the EU on a cross-border basis.
However, for it to continue to provide ratings to be used for regulatory purposes post-Brexit on the 29th March 2019, it will need to have a registered operation within the remaining 27 EU countries.
The company said that Amsterdam has been selected as closely matching its strategic priorities with an excellent talent pool and transportation links to all the major European locations where A.M. Best’s clients are based.
A.M. Best’s office in the City of London will continue to act as its hub for the EMEA region.
Verisk launches new energy insurance platform
Data analytics provider Verisk has launched a new platform which claims to enhance how insurers research, assess and underwrite complex energy risks.
The new risk-scoring platform Energy & Power Intelligence Xchange (EPIX) provides a wide range of information on energy risks-information which otherwise can be time-consuming and costly to obtain and fraught with inaccuracies, according to the company.
“Our energy insurance customers have asked us to provide data analytic solutions to help them improve underwriting precision, reduce costs, and increase operational efficiencies,” said Maroun Mourad, President of ISO Commercial Lines. “The EPIX digital platform can provide energy risk engineers and underwriters with actionable insights in a highly reliable, accurate, and timely fashion for individual risks and portfolios.”
Verisk said that it built EPIX leveraging the data assets of several of its businesses, including Wood Mackenzie, ISO, AIR Worldwide, AER, Arium and Geomni, and is currently building two additional modules.
Skuld expands in 2018 P&I renewals
Marine insurance provider Skuld has reported a 9.4% year on year net increase in mutual P&I (protection and indemnity) gross tonnage in renewals for 2018.
The figure includes committed tonnage for delivery throughout 2018, the firm said on the 26th February.
Following the renewals, which were completed on the 20th February, Skuld’s mutual P&I tonnage now stands at 92 million gross tonnes (GT).
Significant growth was recorded in all commercial P&I business lines, including charterers, offshore and fixed premium/yachts.
AEGIS expands Syndicate 1225 capacity
Mutual insurance company AEGIS is expanding the stamp capacity for Syndicate 1225 by 21% year-on-year to £400 million in 2018 to “take advantage of opportunities,” the company has said.
Despite the highly testing backdrop of industry-wide catastrophe losses, the Mexican earthquake and California wildfires, AEGIS London delivered a combined ratio of 99% in 2017 and holds reserves of 10% in excess of actuarial best estimates, the company noted on the 26th February.
At £462 million, gross written premium was ahead of plan in 2017 and a 23% increase on the prior year.
Bermuda-registered AEGIS (Associated Electric & Gas Insurance Services Limited) provides liability and property coverage, as well as related risk management services, to the energy industry.
UK marine insurer Steamship Mutual chooses Netherlands for post-Brexit HQ
British ship insurer Steamship Mutual plans to set up a new Dutch subsidiary to ensure continued access to trade in the European Union in case Britain loses single market access.
“We are about to apply for a licence to establish a subsidiary company in the Netherlands,” Steamship Mutual’s Executive Chairman Gary Rynsard said, adding it would opt for the port city of Rotterdam.
Britain dominates the global marine insurance market and losing access to specialist Protection and Indemnity (P&I) clubs could weaken its multi-billion pound shipping services sector.
Steamship Mutual, which employs around 150 people in the UK, is one of 13 major global P&I clubs and Europe represents more than 30% of the insurer’s global business.
Mr Rynsard said it needed “to act now” to ensure it could continue to underwrite business in the bloc at the annual renewal date of the 20th February 2019.
This would be just ahead of the 29th March 2019 date when Britain is due to leave the EU and Mr Rynsard said the insurer expected to have five staff in the Netherlands by the end of 2018.
The six P&I clubs regulated in Britain are estimated to account for over half the revenue of an industry which insures about 90% of the world’s ocean-going tonnage.
P&I clubs North and Standard said in late November they would set up EU subsidiaries in Dublin, while UK P&I Club was next to announce it was opting for the Netherlands and was followed by Britannia, which would create a hub in Luxembourg.
The other UK-regulated P&I club, London, has not yet announced its plans.
Many of these clubs – owned by shipping companies – have been an integral part of the City of London for nearly two centuries, insuring ocean-going ships against pollution and injury claims, typically the biggest costs when a vessel sinks.
Hull and machinery cover, which protects vessels against physical damage, is provided separately by other marine insurers.
Dublin, Luxembourg and Brussels are among the EU locations which have emerged for a number of players in the wider insurance market.
Brexit: Lloyd’s Brussels prepares for launch
The London insurance market thinks its Lloyd’s Brussels company will offer corporate clients and stakeholders certainty and continuity despite Brexit
Moving to provide surety to clients amid the uncertainties of Brexit, Lloyd’s is working to get its new Brussels subsidiary operationally ready this summer.
The London-based insurance market is in the process of gaining approval from Belgium’s regulator to begin underwriting Continental European business from ‘Lloyd’s Insurance Company SA’ in time for renewals on the 1st January 2019.
“Essentially we had to try to remove the uncertainty that Brexit created. The main intention has been to secure and bring certainty to customers and to all our market stakeholders,” said Vincent Vandendael, Chief Commercial Officer of Lloyd’s.
Lloyd’s chose Brussels as the location for its new insurance company, designed to provide single market passporting continuity. “Brussels being the heart of the European Union is obviously helpful. Lloyd’s is committed to Europe and all our stakeholders and customers within the single market,” Mr Vandendael said.
He expressed confidence that the National Bank of Belgium (NBB) would approve the new company on time. “We’re well within the timelines. Of course, it’s also the NBB’s timeline, so we need to be patient, but we enjoy a very good collaboration with the Belgian regulator.”
The new subsidiary is a significant undertaking, with €130 million in capital. “It is a fully-fledged insurance company, entirely capitalised and compliant with Solvency II, using standard formula, meeting all governance requirements, with a staff in Brussels, and its own C-suite and board. We want to start writing business on the 1st January 2019, but operationally we want to be ready by the middle of 2018 for a six-months testing period,” he said.
Despite the costs, it provides the best option for French customers and stakeholders, Guy-Antoine de la Rochefoucauld, Director General of Lloyd’s France suggested. He noted that in 2016 Lloyd’s underwrote €0.5 billion premium in France. “We’re confident the new structure offers an even better opportunity for Lloyd’s to grow in the French market,” he said.
“The beauty of this Brexit model is that the distribution of products is fundamentally unchanged. The underwriter can sit in London, Brussels or France. The difference will be that today the underwriter would use syndicate stamp, and in future it will be a Lloyd’s Brussels stamp,” Mr de la Rochefoucauld added.
Lloyd’s is “looking at costs carefully to minimise their impact,” Mr Vandendael stressed.
“Brexit is a big challenge, but we have to turn that challenge into optimising how businesses deal with Lloyd’s. There is no doubt that in comparison with the current situation we will incur additional costs and have capital outside where it currently is,” he said.
“However, we know that our model is the most efficient compared to the other options that our members have. The alternative is that you would have to set up an insurer that is fully Solvency II compliant, capitalise it on your own, and replicate the Lloyd’s branch structure of 17 branches Lloyd’s across the single market,” Mr Vandendael added.
People on the Move
XL Catlin hires EMEA energy boss from Allianz
Nicola Harris joins XL Catlin from Allianz Global Corporate & Specialty where she was head of energy & marine, based in Dubai since 2014.
In her new role, Ms Harris is responsible for providing and designing insurance solutions for the energy sector across EMEA, while leading a team of underwriters based in Dubai, Paris, Amsterdam and Madrid. She is based in Dubai.
IGI announces promotions in their UK office
Graham Hensman has been made Head of Energy, responsible for upstream, downstream and renewable energy.
Mark Fielding has been promoted to Class Underwriter, Upstream Energy.
Matthew Gosling will now take on the role of Senior Underwriter, Engineering.
RMS appoints new CEO
RMS has appointed Karen White as the group’s new Chief Executive, replacing current chief executive and co-founder Hemant Shah.
Ms White started her career in Silicon Valley in 1993 as a senior executive at Oracle reporting to chief executive Larry Ellison.
Cunningham Lindsey taps Crawford exec as Sweden CEO
Claims management firm Cunningham Lindsey has appointed Claes Frick as Chief Executive Officer for Sweden.
Mr Frick joins Cunningham Lindsey from a position as managing director and Nordic business development manager of Crawford & Company, having previously held claims management roles in Sweden, Denmark, Norway and Finland.
He has over 32 years of experience in the insurance industry with expertise in general insurance, claims management and business development in Sweden and across the Scandinavian insurance market.
As CEO of Cunningham Lindsey Sweden, Mr Frick will be responsible for driving new business growth and leading the operations in Sweden.
The company said that his appointment will enable a dedicated focus on Swedish clients, providing tailored services in claims management and specifically major & complex loss adjusting. He will also be part of the overall Nordic management team, supporting the operation of Cunningham Lindsey business across the Nordic countries.
LMA Marine Committee welcomes three new members
Three new members have joined the Lloyd’s Market Association’s (LMA) Marine Committee following a recent ballot of Lloyd’s managing agents.
James McDonald (Global Head of Marine and Energy at Talbot), Richard Tomlin (Class Underwriter for Marine Property at Atrium) and Simon Mason (Head of Energy, Apollo), along with seven re-elected members, will serve a term of two years. Peter McIntosh, Senior Underwriter, Marine and Energy at Ark Syndicate, will continue as Committee Chair.
The LMA Marine Committee provides leadership and direction to the Lloyd’s marine underwriting community and advises the LMA Board on strategic matters relating to marine business.
Priorities for the year ahead include addressing the cyber gap which is the gap between what the PRA may require in this area and current market practice. At the same time it will assist the market in relation to its understanding of cyber exposure and coverage issues.
LMA Marine Committee members (from 2018):
- Peter McIntosh, Ark (Chair)
- Mark Edmondson, Chubb (Deputy Chair)
- Richard Palengat, Aegis
- Simon Mason, Apollo
- Richard Tomlin, Atrium
- Philip Sandle, Beazley
- Andrew Voke, Chaucer
- Bill Katesmark, MAP
- Tim Pembroke, QBE