Energy Review 05-2017
31 May 2017
In the United Kingdom, the news dominating the headlines is expected to be the upcoming general election on the 8th June. What is becoming clear is that, although Brexit would be the overwhelming theme, it is also handy for those parties who felt hamstrung by promises made before the last election – in 2015 – that they will not make them again. Examples are (not) raising taxes and effectively pursuing deficit reduction. In fact, there will be far fewer credible promises than usual; and that will give the government an expected free hand for the next five years.
At the time of writing, energy is also in the limelight with talk of a cap on energy prices. Experts are also saying that the election could have huge implications for UK and European energy firms, and a leading politician has said that Scotland’s oil and gas sector is emerging from the downturn, with people getting back into work and businesses growing in confidence. Another development is the fact that the EU may not agree to an open border between the Irish Republic and UK’s Northern Ireland. Should this eventually lead to the unification of the Emerald Isle, how would this affect access to oil and gas in former UK territorial waters?
During a feisty two-week period, the world watched and listened as President Trump started running out of patience with North Korea. Fortunately, China leaned on its neighbour and prospects of millions of deaths and massive destruction have subsided. What the world is now waiting for is China’s invoice: US backing off in the South China Sea?
Although the two most aggressive global competitors with the USA – China and Russia – have fragile economies far smaller than that of the USA, they both have great plans for energy to leverage their worldwide authority. China has cannily decided to pull back on oil production because it would not get a good price per barrel; expect this to change radically when the price per barrel surpasses US$75. It is Chinese banks who are playing another important role in assisting exploration and production; witness the recent billion dollar loan to Ophir to back the development of its Fortuna floating liquefied natural gas (FLNG) export project in Equatorial Guinea. Russia is still the world’s largest exporter of gas, and with Europe’s largest gas field in Groningen lowering production significantly, it is Russia who will probably beat the USA in filling the gap.
Reports and analyses are now coming through that global oil discoveries fell to a record low in 2016 as companies continued to cut spending, and conventional oil projects sanctioned were at the lowest level in more than 70 years. Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of nine billion barrels per year over the past 15 years.
Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30% lower than the previous year as the number of projects which received a final investment decision dropped to the lowest level since the 1940s.
This sharp slowdown in activity in the conventional oil sector was the result of reduced investment spending driven by low oil prices. But times are changing: the North Sea region will see 30 crude and natural gas projects starting operations by 2020; Iran is now bringing the gas fields in South Pars phases 17-21 into production; and studies have revealed that employment in oil and gas is on the increase as oil prices tend to move up cautiously.
The latest ICC International Maritime Bureau (IMB) report on piracy was released earlier this month, with news of 33 vessels being boarded during the first three months of the year.
Following the decision by Lloyd’s to set up an EU hub in Brussels, many other players have declared their hands, with FM Global, QBE and Hiscox making their choices. While many would feel it is wishful thinking, a deal to allow the Rock to keep passporting rights for UK and EU companies could help the ailing Spanish economy get back on the right track.
We have seen interesting career moves in the London energy insurance and reinsurance markets with Markel especially active.
As usual, we look forward to your comments and we are ready to assist you with your needs and requirements.
No ‘suspicious circumstances’ in missing North Sea worker case
On the 11th May it was announced that search operations for an offshore worker missing from a North Sea rig had been scaled back. There were no suspicious circumstances related to the disappearance, an investigation revealed.
A 49-year-old man had been working on the Noble Lloyd Noble jack-up rig on the Statoil-operated Mariner field, approximately 90 miles east of Shetland. The alarm was raised on the 9th May after a search of the rig failed to locate the worker.
A UK Coastguard helicopter, an offshore support vessel and other vessels in the area searched overnight (9th/10th May) for the missing man.
According to a report by Police Scotland, searches involving the coastguard had been carried out but have now been scaled back. The man has not been traced. Rescue vessels are continuing to search and a team of officers, led by Detective Inspector Norman Stevenson, has flown offshore to carry out inquiries and assist the installation.
Stevenson said, “An extensive search has been carried out which has involved a search and rescue helicopter as well as standby vessels and a platform supply vessel.
“The next of kin of the man have been informed of the ongoing inquiries and further information will be made available to the public when we have it.”
Noble Lloyd Noble is one of the world’s largest jack-up drilling rigs. It was delivered from Sembcorp Marine’s shipyard last July and started production drilling on the Mariner field last December.
Gas leak at chemical firm INEOS contained at Scotland’s Grangemouth
A gas leak inside petrochemicals firm INEOS’ Grangemouth site in Scotland was successfully contained on the 2nd May after emergency services rushed to the scene, police said.
The incident forced the evacuation of non-essential staff and the closure of local roads. There were no reports of any injuries.
“The incident was caused by a leak on a pipe carrying ethylene gas which has been identified and is being isolated,” INEOS said in a statement.
Earlier, the company said it had detected the leak on a pipeline inside its Kinneil Gas manufacturing plant at noon, prompting it to close a number of access gates and allow only essential personnel to enter the south side of the site.
Police said in a statement that the incident had now been “contained on site”, adding, “Officers would advise members of the public to go about their normal business.”
Operations at the oil refinery were not impacted by the incident, INEOS said.
Scotland’s Fire and Rescue Service sent eight fire engines to the scene.
The Grangemouth site covers about 1,700 acres and employs more than 1,300 people in an oil refinery and petrochemical plant by the estuary of the River Forth in central Scotland.
According to its website, the Grangemouth site contributes four percent of Scottish gross domestic product and makes up approximately eight percent of the country’s manufacturing base.
The site includes petrochemical plants and an adjacent oil refinery with a capacity to process about 200,000 barrels of crude per day.
Maritime piracy report sees first Somali hijackings after five-year lull
Pirates and armed robbers attacked 43 ships and captured 58 seafarers in the first quarter of 2017, slightly more than the same period last year, according to the latest International Chamber Of Commerce (ICC) International Maritime Bureau (IMB) piracy report released on the 4th May.
The global report highlights persisting violence in piracy hotspots off Nigeria and around the Southern Philippines – where two crew members were killed in February. Indonesia also reported frequent incidents, mostly low-level thefts from anchored vessels.
In total, 33 vessels were boarded and four fired upon in the first three months of 2017.
Armed pirates hijacked two vessels, both off the coast of Somalia, where no merchant ship had been hijacked since May 2012. Four attempted incidents were also received.
Anadarko shuts 3,000 wells in Colorado after home explosion
Anadarko Petroleum Corporation, Houston, has shut more than 3,000 producing vertical wells, or a total of 13,000 net boe/d of production, in north-east Colorado following a home explosion and fire in Firestone on the 17th April.
Two men were killed in the incident, which is being investigated by the Colorado Oil & Gas Conservation Commission.
Anadarko said it operates an older vertical well that is about 200 feet from where the home was recently built. As such, the firm has been working with fire officials and state regulatory agencies in their investigations since the time of the explosion. The well was drilled by a previous operator in 1993.
The wells would remain shut until the company’s field personnel could conduct additional inspections and testing of the associated equipment, such as facilities and underground lines associated with each wellhead. The firm holds 400,000 net acres in the DJ basin development area.
Anadarko said particular focus was being placed on areas where housing and commercial developments are occurring in close proximity to existing infrastructure. The wells would not be restarted until each had undergone and passed these additional inspections.
The firm anticipated the process would take two to four weeks, depending on weather.
Fatal accident during supply ops for Nido Petroleum
ASX-listed oil and gas company Nido Petroleum has advised that there has been a fatal accident in Labuan, Malaysia, during supply operations related to the company’s Galoc field in the Palawan Basin, offshore Philippines.
Nido’s subsidiary, Galoc Production Company (GPC), reported on the 24th April that the accident had happened on Saturday 22nd April 2017.
A contractor of Malaysia’s Tiger Oilfield Services, a provider of support services to the oil and gas industry, was killed while carrying out support vessel tank cleaning operations. The Malaysian police have been notified of the accident and Nido said it will co-operate fully with any official investigations. Nido added it will also undertake a comprehensive internal investigation.
No further details have been revealed about the accident.
Nido, as the operator of the Galoc field, is working to evaluate further exploration, appraisal and incremental development opportunities at the Galoc oilfield and in the SC 14 C1 Contract Area.
The company recently drilled an appraisal well on the Galoc field with the Deepsea Metro I drillship. Following inconclusive results from the appraisal well, the company recently said it would drill a sidetrack well.
Related to the Galoc-7ST-1 well, the company said that the Deepsea Metro I was conducting operations to set the 9-5/8” casing. Following the setting of casing the forward plan was to drill through the target reservoir section of the Galoc Clastic Unit in the 8-1/2” hole.
Fire at PDVSA Isla refinery on Curacao now out
A large fire that occurred early on Sunday 21st May at the 335,000-barrel-per-day Isla refinery on the Caribbean island of Curacao is now out, according to witnesses and sources.
The facility, run by Venezuelan state oil company PDVSA, is operating at around 50% of its capacity, according to sources.
A source said the fire broke out at one of Isla refinery’s crude distillation units.
PDVSA President Eulogio del Pino confirmed on Twitter that the fire was out, adding that there were no injuries and an investigative committee had been formed.
PDVSA’s reliance on Isla has increased this year since the refinery restarted operations after a planned major maintenance program.
Petroleos de Venezuela SA, or PDVSA, has increased purchases of refined products in recent months as its 1.3 million bpd domestic refinery network works at record lows due to lack of crude and spare parts, and equipment malfunctioning, according to internal documents and sources.
IUA points to growth opportunities for London Market
The next few years will be vital in establishing London’s long-term relationship with emerging markets in Asia and Latin America, according to Dave Matcham, CEO of the International Underwriting Association (IUA).
A clear opportunity exists for the London Market to serve as a truly global centre for specialised insurance business, the International Underwriting Association has stated.
Mr Matcham was responding to new industry data published in the London Matters 2017 report. The report showed that, between 2013 and 2015, the London Market’s share of business from emerging markets declined as premiums fell from US$10.5 billion to US$9.3 billion.
“Clients naturally have a preference to buy locally if they can and many IUA member companies have increased their profile across a range of different markets in order to cater for this demand,” Mr Matcham said.
“However, London Matters shows that in recent years we have increased our already high share of global specialty markets, suggesting that for the most specialist risks our market is the place to look. As emerging economies mature their appetite for such cover will no doubt increase, so it is important that we push ourselves to reach beyond traditional markets.
“Similarly, London’s concentration of insurance expertise must be leveraged to innovate new solutions for emerging specialty risks. London Matters estimates that cyber premiums have grown by 74 percent over the past two years. If we can establish ourselves in the vanguard of such developing business, then our contribution to the global insurance industry can only be enhanced.”
Indonesia sues Australian firm over oil spill disaster
The Indonesian government is suing Thailand’s state-owned PTT and PTT Exploration and Production for around US$2 billion for alleged damage to the environment from an oil spill in the Timor Sea eight years ago.
The Montara wellhead, operated by subsidiary PTTEP Australasia, caught fire in 2009, leaking hundreds of thousands of litres of oil off the northern coast of Western Australia, according to media reports at the time.
The incident was considered one of Australia’s worst oil disasters, and PTTEP was fined A$510,000 (US$394,000) by a Darwin court after pleading guilty in 2011 to charges related to workplace health and safety and failure to maintain good oilfield practice.
Indonesia alleges, however, that the oil spill also fouled seawater and coastal areas in the nation’s East Nusa Tenggara province, and filed a lawsuit on the 3rd May in a Jakarta court against PTT, PTTEP and PTTEP Australasia, seeking 27.5 trillion rupiah (US$2.1 billion) for damages and restoration costs.
PTTEP Australasia “has not shown good intention in resolving the pollution problem of the Montara oil spill,” Indonesia’s maritime coordinating ministry said in a statement on the 5th May.
Besides polluting seawater, the incident also damaged mangrove forests, coral reefs and sea-grass fields in East Nusa Tenggara province, the ministry said.
PTTEP said in a statement that it was aware of reports about Indonesia’s lawsuit, but that it “has not been served with proceedings and has not received any notification of the substance or extent of the claim.”
PTTEP has always acted cooperatively and “in good faith” in its past discussions with the Indonesian government, and will continue to do so, it said.
PTTEP Australasia maintains its position that “no oil from Montara reached the shores of Indonesia and that no long-term damage was done to the environment in the Timor Sea,” the company said.
In a separate class action suit, around 15,000 Indonesian seaweed farmers are seeking more than A$200 million (US$152 million) from PTTEP Australasia to cover damages from the spill.
The next hearing in the class action suit is due to take place at the end of May, according to their legal team.
Insurance hub Gibraltar plans for end of EU passporting after Brexit
Gibraltar is preparing for a post-Brexit setup in which its firms will no longer have access to the European Union market but will maintain a preferential relationship with Britain, a top Gibraltar financial official said on the 9th May.
The tiny British enclave on Spain’s southern tip, with a population of 30,000, is home to around 15,000 companies and is a major provider of insurance services.
“We are currently planning for a hard Brexit,” James Tipping, Director at Gibraltar’s government body for financial promotion, told EU lawmakers in a hearing in Brussels.
He said Gibraltar did not expect to obtain a “special status” and was resigned to lose its access to the EU market after Britain leaves the EU at the end of a process triggered in March by Prime Minister Theresa May.
This would mark a shift in Gibraltar’s stated policy of seeking extraordinary arrangements with the EU after Brexit.
Many companies have so far been attracted to Gibraltar by the prospect of being able to operate in all 28 EU countries from a territory with low tax rates and business-friendly regulations.
The loss of the access to the EU market, granted to EU member states by so-called passporting rules, may reduce firms’ appetite to establish their headquarters in the British enclave.
But this may not discourage Gibraltar-based firms which operate in the United Kingdom.
“Our financial model will not have to change,” Mr Tipping told lawmakers, noting Britain has committed to guarantee full access to its market for Gibraltar companies.
He said about 20% of motor vehicles in Britain are underwritten by Gibraltar-based insurance companies, making insurers the largest financial sector in Gibraltar, which is also home to more than a dozen banks, several investment funds and top online gambling firms.
Gibraltar, often dubbed “the Rock” because of its famous cliff-faced mountain, voted overwhelmingly to remain in the EU at last year’s Brexit referendum.
It remains, however, committed to remain part of Britain after Brexit. The enclave rejected the idea of Britain sharing sovereignty with Spain by 99% to 1% in a referendum in 2002.
The future of Gibraltar is one of the many thorny issues which will have to be sorted in the two-year divorce talks between Britain and the EU, which will end in March 2019.
The EU offered Spain a veto right over the future relationship between Gibraltar and the EU after Britain leaves the bloc.
London underwriter selects Luxembourg as European hub
Hiscox has decided to establish a new subsidiary in Luxembourg to underwrite its retail business in Europe following Britain’s decision to leave the European Union, it said on the 9th May.
The company, which insures a broad range of risks from oil refineries to kidnappings, said it would start setting up the subsidiary immediately and expected the process to be completed well in advance of March 2019.
FM Global is also planning a European hub in Luxembourg, the head of its European division has said.
The mutual insurer, which earned US$5.5 billion in gross premium last year, plans to continue many business operations in Windsor, west of London, but has also set up a Luxembourg-based subsidiary, FM Insurance Europe, SA, to issue policies in the EU and other countries, said Chris Johnson, an executive vice president in charge of FM Global’s European business.
The move follows that of American International Group, Inc., which said last month that it would keep its main European headquarters in London and open a subsidiary in Luxembourg to cope with Brexit. (Lloyd’s, meanwhile, chose Brussels for its subsidiary).
Hiscox had shortlisted Luxembourg and Malta as potential EU bases but said that Luxembourg had been chosen for its pro-business position, strong regulatory base and central European location.
Luxembourg and Brussels, along with Frankfurt, Paris and Dublin, are touting themselves as an alternative base for firms wishing to retain access to the EU after Brexit.
“This is going to be the centre of our European business, so it made sense to establish something physically closer to it rather than a bit far away,” Hiscox Chief Executive Bronek Masojada said. “Luxembourg is in the centre of Europe and it is close to major markets.”
FM Global’s Johnston, Rhode Island, which insures one in three of the Fortune 1000 list of largest US companies, chose Luxembourg for regulatory expertise, understanding of global business and talent base, Mr Johnson said in an interview at a risk management conference in Philadelphia.
“We wanted a country which was used to a multinational environment,” Mr Johnson said. “If you can´t hire accountants, insurance professionals and lawyers, you´re in a world of hurt.”
Other considerations included being allowed to hold board meetings in English and have board members who are also policyholders, Mr Johnson said.
Earlier this month, Luxembourg, already a major asset management and financial services hub in Europe, said it was in talks with firms including banks, asset managers, insurance companies and fintech companies which wanted to set up shop.
Mr Masojada said the insurer was using a mix of internal people and external consultants to execute its plans, would put capital into the Luxembourg subsidiary and retain some insurance risk there, allowing it to operate independently of London.
Hiscox said its existing European business, which comprises over 350 people across seven of the EU’s 27 countries, will continue to operate without interruption.
Many insurers and finance companies have started planning new EU bases as they expect Brexit to result in the loss of rights to sell insurance policies and other products across the EU from bases in Britain.
Lloyd’s, where Hiscox is an underwriter, has chosen Brussels for its new EU outpost.
Hiscox said it would hire a team in Luxembourg covering core functions such as compliance, risk and internal audit in Luxembourg to complement its existing structure.
Mr Masojada said Hiscox would initially hire at least six people in Luxembourg through the rest of this year in newly created roles, but said there were no definite job estimates for the longer term, although he expected the base to grow over time.
He said Hiscox, which currently employs 1,200 people in Britain, 600 of whom are based in London, did not anticipate shifting any London jobs to Luxembourg.
FM Global currently employs roughly 200 people in the UK. The plan, if finalised, will require duplicating roles to continue serving UK clients while also issuing coverage throughout Europe. Clients whose coverage extended throughout the EU will now also need separate UK coverage, Mr Johnson said.
The Luxembourg subsidiary would require adding new staff, including its board, managing director, and other key positions, but would not be a large-scale move from Britain.
Regulators require firms to employ staff needed to run a business, such as IT, compliance and finance, in any subsidiary, consultants say. FM Global’s plan is subject to regulatory approval. In December, Luxembourg regulators issued preliminary approval for FM Global to set up the unit, but not to conduct business, Mr Johnson said. A timeframe for final approval is unclear.
Maritime insurers eye business opportunity as non-oil spills in sea rise
While the number of oil spills has declined in recent years, there is a higher incidence of what experts call the “new pollution” which needs to be tackled, and is also a business opportunity for marine insurance companies, sources said during the Singapore Maritime Week in late April.
According to industry estimates, maritime oil spills at the beginning of this decade averaged 2.5/year, down from 24.5 in the 1970s, 7.8/year in the 1990s and 3.3/year in the 2000s.
“Oil spills are decreasing while the non-oil related pollution incidents are on the rise,” a senior insurance executive said at one of the seminars during Singapore Maritime Week.
According to data from The International Tanker Owners Pollution Federation, or ITOPF, there are currently more non-tanker pollution-related incidents in international waters than those related to tankers.
This is resulting in a changing role for the ITOPF, which is now attending to more incidents relating to ships which are not tankers.
Of the incidents attended by the ITOPF between 2000 and 2014, a little of a third related to tankers, while 23% were of bulk carriers and 18% of containers.
Established in 1968, the ITOPF has been providing its key service of emergency response to tanker owners since the 1970s. From 1999, this service was formally extended to the owners of other types of ship as well.
While many companies plan for spills of oil and chemicals, there are instances when containers or bulk carriers spill cargoes into the sea.
In 2013, a massive spill of molasses from a faulty pipe in the Honolulu Harbour killed thousands of fishes. The load was originally meant for a Matson container ship.
Last year, India’s National Green Tribunal, or NGT, imposed a heavy fine on the Delta Marine Shipping Company and Adani Enterprises Ltd. for causing damage to the marine environment.
This was in response to a petition after the sinking of Delta carrier MV RAK around 20 nautical miles off the coast of Mumbai while carrying over 60,000 mt of coal for Adani in 2011.
The vessel also contained around 290 mt fuel oil and 50 mt gasoil, on its voyage from Indonesia to Dahej in India’s Gujarat province.
According to maritime insurance professionals, instances of non-oil tanker spills in the past include a livestock carrier spill and a Brazilian dam collapse.
“The good part is that insurance covers are available for such risks of incidents which cause pollution,” said a Norway-based insurance executive involved in underwriting such covers.
The covers provide for liabilities, costs and expenses arising in consequence of the discharge or escape from a ship of oil or any other substance or the threat of such discharge, the executive said.
The fines imposed by a court or tribunal are also covered or are excluded, depending on the rules under which the insurance is taken, the executive added.
Transportation of hazardous and noxious substances, or HNS, by sea are governed by various regulations of the International Maritime Organisation, or IMO, which is a specialised agency of the United Nations.
The organisation is pushing hard for member states to ratify the HNS Convention of 2010, which covers the liability and compensation for damage in connection with the carriage of such substances by sea under the ‘polluter pays’ principle. Last month, Norway became the first country to ratify the convention.
“The HNS Convention is the last piece in the puzzle needed to ensure that those who have suffered damage caused by HNS cargoes carried on board ships have access to a comprehensive and international liability and compensation regime,” IMO Secretary General Kitack Lim said in a statement after Norway’s ratification.
The number of ships carrying HNS cargoes is growing steadily, with more than 200 million mt of chemicals traded annually by tankers and “we have to recognise that accidents can and do happen,” Mr Lim said.
Entry into force of the convention requires ratification by at least 12 member countries, meeting certain criteria in relation to tonnage and reporting annually the quantity of HNS cargo received in that country.
Maritime insurance executives point out that the HNS Convention not only covers liquid substances carried in tankers, but also hazardous and harmful materials and substances carried in packaged form or in containers, and solid bulk materials defined as possessing chemical hazards.
It depends on the context and even an earlier protocol of the IMO has given specific definition of the HNS, they said.
The evolution of the containers’ shipping segment has also resulted in a spate of incidents which, if covered under insurance, will keep ship owners in good stead, sources said.
“Container-based pollution implies that whatever they carry can be spilled into the sea,” the same Norway-based underwriter said.
Increase in piracy leads to rise in demand for kidnap and ransom insurance
There is a marked increase in ship-owners opting for kidnap and ransom (K&R) insurance across Southeast Asia and the Gulf of Aden region because of recent attacks on merchant vessels, executives involved in the deals in Europe and Asia said during the recent Sea Asia conference in Singapore.
A total of 20 incidents of piracy and armed robbery against ships – 15 actual and five attempted – were reported during January-March in Asia, according to anti-piracy watchdog The Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia, or ReCAAP. The total is little changed from 17 in the first quarter of 2016.
There are now more queries for K&R insurance and they are increasingly translating into actual purchase by ship-owners, said a senior executive with a K&R insurance specialist company.
“Unlike the past, when many owners won’t follow up after an initial inquiry, our company is able to sell at least one K&R policy cover a month to companies whose ships move in the Sulu Sea,” the executive said. Depending on the voyage plans of a ship, K&R coverage is available for even a short trip, or on an annual or multi-year basis.
The trend is significant because billions of dollars’ worth of commodities are shipped on merchant vessels in the vicinity of the Sulu Sea, according to industry estimates. And the risks are high; as of the end of March, 21 of the 58 crew abducted in the Sulu-Celebes Sea region in the previous 12 months were still in captivity, ReCAAP said.
There is also a revival of piracy in the Gulf of Aden, and a chemical tanker was attacked at the end of April. In West Africa, at least 11 serious incidents have been reported this year, including a large bulk carrier (the Eleni M), in the Gulf of Guinea, with six crew members taken hostage in early April.
Ship-owners typically take insurance covers for hull and machinery, protection and indemnity (P&I), and war risk.
“The unrest near the Philippines can’t be classified as war but it is serious enough to be covered through other forms of insurance,” said a Norway-based executive of a major western P&I club.
In the routine course of things, abduction risks may come under P&I cover but insurers are not willing to pay ransom to abductors explicitly.
“We won’t pay ransom but the costs involved can be indirectly offset through protective compensation,” the Singapore head of a major maritime insurance company said.
Insurance policies are liable to pay compensation for deaths of the crew and to prevent this, they can use a mitigation clause to indirectly compensate the owner for ransom, the Norway-based executive said.
Due to ambiguities over the handling of claims arising from piracy attacks in a traditional cover, insurance companies are offering customised packages of K&R.
ReCAAP expressed serious concern over the continued occurrence of incidents involving the abduction of crew from ships sailing through the Sulu-Celebes Sea and waters off Malaysia’s Sabah state. During the first quarter of 2017, three abductions and three attempted incidents were reported.
In contrast, the number of reported incidents along India’s waters declined from ten in the year-ago period, to one in the first quarter of 2017.
Higher premiums in south-east Asia
Premiums for K&R cover in the Sulu-Celebes Sea region are higher than those in the Indian Ocean region, but it is not necessarily based on the recent spike in piracy attacks.
“The size of the ships moving along Sulu Sea is small and they are easier to board” for pirates, an insurance executive said.
The risk level of ship is based on its size, average speed and gross register tonnage. Many of the small ships with a freeboard of three to six metres move at a speed of around 12 knots. Higher speed and freeboard can translate into smaller premiums.
At times, the insurance companies provide a complete coverage package, which even includes negotiations with the pirates and payment of ransom through crisis response consultants.
“The initial demands are often unrealistically high while the abduction is settled for a fraction. The insurance company’s management and input is crucial,” the executive said.
It is important to have K&R cover for crew onshore to protect them against illegal detention. According to estimates of insurance companies, millions of dollars are paid as ransom annually.
An official at one of the insurance companies – S&P Global Platts – said it has a piracy pay-out capacity of US$15 million for each K&R cover, mainly for payment of ransom. Other expenses will be dealt with additionally, including port fees, bunkering, legal fees, personal accidents, consultancy and loss of hire.
Debate on piracy vs ransom
Nevertheless, such covers can be tricky due to the thin line between piracy and terrorism. In recent years, countries such as the UK have clarified their positions and reiterated that, under their laws, terrorists are not paid to get hostages released.
This applies to the insurance companies as well. Therefore underwriters, lawyers and crisis response consultants working with them undertake appropriate procedures.
There is a standard clause at Lloyd’s which is applied to all such policies, under which coverage to a ship is automatically excluded if it exposes the insurer to the risk of sanctions.
“We will never pay ransom to terrorist organisations such as Abu Sayyaf,” said a maritime insurance executive in Singapore.
However, chartering companies point out that the killing of crew members by terrorist organisations opens up the possibility of claims under cover for death and dismemberment. Hence, the specific wording used by the underwriter is crucial for both the insurer and the ship-owner.
QBE set to move European base from London
QBE Insurance Group will move its European base from London to the continent because of uncertainty in accessing the European market after Brexit, the chairman of Australia’s largest international insurer said on the 3rd May.
“We need to prepare our business for this reality, and we are doing so on the assumption the existing access arrangements enjoyed by UK domiciled insurers to the other 27 European Union countries will not be preserved,” Marston Becker told shareholders at QBE’s annual general meeting in Sydney.
A QBE spokesperson said no announcement had been made as to where the company planned to relocate and declined to comment further.
The Sydney-based insurer employs over 14,500 people worldwide, including around 1,950 across 16 European countries. Its European division, based in London, accounted for more than US$4 billion in gross written premiums in 2016.
Britain’s decision to trigger Article 50 of the Lisbon Treaty, starting the country’s formal two-year countdown to leave the European Union, has caused political and economic uncertainty, with the financial services industry expected to be one of the heaviest hit. Several global banks and other financial services groups have indicated they may leave or curtail operations in Britain.
Mr Becker warned that while the impact of Brexit on the British economy was not clear, the company’s move would affect its QBE Insurance Europe Ltd. business, QBE Reinsurance and its Lloyd’s business operations.
“We are well-advanced with our plans and negotiations for the establishment of a new location for our EU business,” he said. “We expect to have a solution in place for 2018 renewals.”
Mr Becker, whose company launched a three-year A$1 billion (US$750.6 million) share buy-back initiative in February, said global conditions for the insurance industry seemed more favourable with regards to investment returns in the coming year, as central banks move away from low interest rates and monetary stimulus packages.
However, he warned that anti-globalisation and other political upheavals were becoming more of a factor in industry decisions.
New marine and energy loss index could spur ILS into new risks
PCS has claimed that its launch of a new loss index covering the global marine and energy markets could help bring new risks to the insurance-linked securities (ILS) markets, a necessity if that form of risk transfer is to continue to grow and develop.
The company formally launched PCS Global Marine and Energy, its first entry into the non-elemental large risk loss space. It said this will be followed by several other specialty lines loss aggregation solutions.
“Ultimately, the future growth of the ILS space will depend on the ability for original risks to enter the market, providing for both a broadening of engagement and the ability to deliver depth within each line,” the company said in its latest PCS Q1 2017 Catastrophe Bond Report.
“The ILS market demand for new risk areas and types remains significant. Conversations throughout the 1st January 2017, renewal and after have emphasised the interest the ILS market has in lines such as global marine and energy, terror, and cyber, among others. The launch of PCS Global Marine and Energy should help satisfy this need by bringing more original risk to market, with subsequent loss aggregation solutions likely to help the market expand further.”
Currently, PCS Global Marine and Energy has losses for 11 events going back to 2009, with efforts in progress to complete the historical database for this period.
The PCS Global Marine and Energy loss estimate process begins with the designation of a marine and energy loss event. When PCS believes that an event is likely to cause more than US$250 million in damage, it assigns a four-digit serial number, and the event becomes a “PCS Identified Marine and Energy Event”.
For each loss event, PCS issues an event designation bulletin, indicating that it believes the loss likely to exceed US$250 million. The bulletin also includes information about the event, such as location, likely cause of loss, type of event, and other anecdotal information.
At the end of the second quarter following the loss event, it will issue a bulletin with its preliminary loss estimate (for example, the first estimate for an event on the 15th March would come out in July). It will then publish quarterly updates until it believes the loss estimate is stable, based on feedback from companies providing underlying loss data to PCS.
Swiss Re sets up Asia headquarters in Singapore
Swiss Re has established a dedicated regional legal entity in Singapore for its reinsurance business unit. The entity will also house the regional headquarters for Swiss Re’s network of reinsurance operations in Asia.
The new structure of the reinsurance business will not affect Swiss Re Corporate Solutions in Asia, the company said.
The Singapore-based entity and regional headquarters is expected to be established in 2018. Swiss Re plans to realign the office network to the new structure by 2020, subject to regulatory approval.
Swiss Re Asia, the wholly-owned subsidiary of Swiss Re, will continue to serve its clients and partners across the region through its network of offices, mirroring its existing footprint in Australia, China, Hong Kong, India, Japan, Korea, Malaysia and Singapore.
According to the company, the Asian insurance sector has seen strong growth over the past decade, with the region now accounting for 30% of global insurance premiums, compared with 20% in 2007. Swiss Re expects the region’s non-life and life premiums to grow by 5% and 6% respectively, in real terms per annum in the coming decade. Emerging Asian insurance markets will grow even faster.
Swiss Re has been associated with Asia since 1913. Swiss Re’s Hong Kong branch will continue to be the Asian hub for the company’s life and health business. It will also remain the base for a number of its property/casualty teams.
Sompo develops nat cat model for NW Australia offshore oil & gas installations
Sompo Japan Nipponkoa Insurance Inc. (SJNKI) and Sompo Canopius AG are launching a natural catastrophe risk model for north-west Australia offshore oil and gas installations.
The model development was carried out by Sompo Risk Management & Health Care Inc., which provides analytics and model development within the Sompo group.
“This is the first stochastic natural catastrophe model for offshore north-west Australia that offers a quantitative assessment of cyclone risk and the impact it could have on the expanding offshore industry,” the companies said in a statement.
The model contains three elements:
- A hazard module, which stochastically evaluates wind and wave levels;
- A vulnerability module, which computes the potential level of damage a storm could cause; and
- A financial module, which drills down to the losses that exploration and production property could sustain and applies insurance coverage to them.
These three elements deliver a comprehensive resource that can be used in underwriting, the design of terms and conditions, risk evaluation and assessment of appropriate levels of cover, reinsurance or capital needed, the company added.
“The prevalence of frequent and extreme cyclone activity in the region clearly demonstrates the threat to property located within the north-west shelf area of Australian territorial waters,” said Tatsuhiko Okubo, Energy Section Manager at SJNKI.
“Undoubtedly, the loss potential that powerful storm systems pose to operators and their partners in the offshore exploration and production industry is increasing with the ongoing expansion of infrastructure in the north-west shelf,” added Okubo.
Steve Warren, Sompo Canopius Group Head of Energy & Engineering, commented, “This model will help us in supporting our brokers and clients to understand and manage their risks more effectively, as the region’s energy industry continues its ongoing rapid development.”
CA approves new refinery safety rules five years after Chevron fire
On Thursday 18th May, California regulators approved new safety rules for oil refineries, nearly five years after a major fire at Chevron’s Richmond facility sent thousands of East Bay residents to local hospitals.
The regulations are designed to anticipate potential problems and prevent accidents that could harm refinery workers and surrounding communities. Christine Baker, Director of the California Department of Industrial Relations, called the rules the “most protective” in the country.
Oil companies will be required to use the safest equipment, and production line workers – not just bosses – will have authority to shut down units they deem unsafe, under the new rule.
“This is the most protective regulation in the nation for the safety and health of refinery workers and surrounding communities,” said Baker. The board of the department’s Division of Occupational Safety and Health, known as Cal/OSHA, approved the rules after a long drafting process triggered by the Chevron fire in August 2012. Six refinery employees suffered minor injuries from the fire, while an estimated 15,000 area residents went to local hospitals complaining of respiratory problems.
“This new regulation will ensure California’s oil refineries are operated with the highest levels of safety possible and with injury and illness prevention in mind,” Baker said in a press release.
The new regulations require refinery owners to study how staffing levels and worker fatigue affect safety. They must also review their processes that can lead to equipment corrosion or mechanical wear. And the rules encourage refinery owners to pick the most effective safety measures when fixing hazards, even if those measures increase costs.
Many California refineries already use some of the practices the new regulations require, according to the department.
California has 19 oil refineries, 14 of which make gasoline. Most are concentrated in the densely populated Los Angeles area or the East Bay. And they have a long history of mechanical glitches, fires and explosions.
The Chevron Richmond fire, caused by a crack in a corroded pipe that drew diesel away from the refinery’s crude-oil processing unit, led Gov. Jerry Brown to convene a task force on refinery safety.
It also prompted Cal/OSHA to ramp up its own inspection of refineries. Before the accident, the division inspected two or three refineries per year, sending a single inspector to each facility. It now conducts four inspections per year, with four or five people assigned to each, according to the Department of Industrial Relations.
Labour groups that represent refinery workers welcomed the new rules.
“Richmond could have been much worse – a lot of people could have died – and we took the lessons from that fire to heart in fighting for these new rules,” said Mike Smith, an employee at the Chevron Richmond refinery and staff representative of United Steelworkers Local 5.
Asked for comment on the new rules, Chevron referred questions to an oil industry trade association.
People on the Move
Barbican hires Wiffen from XL Catlin for energy team
Barbican is continuing to expand its energy team under the leadership of recently arrived Divisional Head Olivier Decombes.
The insurer has appointed former XL Catlin underwriter Jacqueline Wiffen as Class Underwriter for upstream energy, with immediate effect.
She will report to Decombes, who joined from Starr last July as Divisional Head for Energy, Power and Utilities.
Wiffen has 12 years’ experience in the energy sector, most recently as class underwriter for upstream energy at XL Catlin.
Appointments at Markel Int. Singapore and MENA
Specialist insurer Markel International Singapore has appointed Gustaf Kristiansson as a marine underwriter.
Based in Markel’s Singapore office, Mr Kristiansson will manage the marine hull and cargo portfolio across Asia Pacific, and will report to Principal Officer and Managing Director, Matt Cannock.
Mr Kristiansson has over ten years of shipping and marine insurance experience, and had previously been based in Markel International’s Sweden office, also working as a marine underwriter.
Markel International has also appointed Amer Ibrahim as Marine Underwriter in Dubai to extend the range of its business in the MENA region.
Markel was granted regulatory approval by the Dubai Financial Services Authority (DFSA) to operate within the Dubai International Financial Centre (DIFC) in January 2015, and since then the company has focused on developing its trade credit and political risk businesses.
Mr Ibrahim’s 14-year marine insurance career has been with Abu Dhabi National Insurance Company (ADNIC); since 2013 he has been manager of the company’s hull department.
He will also join Markel’s Lloyd’s platform in the DIFC, led by Leroy Almeida, Senior Executive Officer and Head of Trade Credit and Political Risks, Middle East, and will report to Jason Page, Head of Hull and War, based in London.
AGCS adds Massie to offshore energy team
Allianz Global Corporate & Specialty (AGCS) has hired Zoe Massie from Talbot Underwriting as an offshore energy underwriter in its London-based energy team.
In her new role she will report to Tracey Hunt, AGCS Regional Head of Energy, London.
At Talbot Ms Massie was an underwriter of bespoke (re)insurance coverage for oil and gas companies in the London and international markets.
London Market Group re-appoints Aubert as Chairman
The London Market Group (LMG) has announced the re-appointment of Nicolas Aubert, Head of Great Britain for Willis Towers Watson, as its chairman.
The last 12 months has seen progress across all of LMG’s work-streams, including market modernisation work, including the launch of PPL, the London Market’s electronic placing platform. (PPL is an initiative of the London Market’s Target Operating Model, or TOM, a programme which aims to modernise the market and make it easier to do business in and with the London Market).
“The curve ball of 2016 was Brexit, but this has given us both opportunities and challenges,” he said, noting that the LMG is working very closely with the government to “protect our businesses and make positive changes that will allow our unique marketplace to grow and thrive.”
During his career, Mr Aubert has served as the head of several large insurance entities in Europe, both on the broking and underwriting side.
The LMG represents specialist commercial re/insurance broking and underwriting communities in London.
Liberty hires senior exec from XL Catlin for European role
Liberty Specialty Markets (LSM) has appointed Kerry McKay to the newly-created role of Head of Distribution and Client Management for Continental Europe.
Mr McKay will assume his new role this summer, and will report directly to the head of Europe, Kadidja Sinz.
According to LSM, the move is part of the company’s strategy to expand its operations as a specialist insurer throughout Europe, providing a broad range of services and products through its six continental European branch offices.
Mr McKay most recently held a global role as head of central broker management for XL Catlin, where he worked for the past five years.
Markel poaches senior marine exec from Munich Re Syndicate
Specialist insurer Markel International has appointed Colin Fordham as a senior marine liability underwriter based in Singapore.
Mr Fordham joins Markel from the Munich Re syndicate on the Lloyd’s Asia Platform, where he held the same position. Prior to that, he was the general manager for SEAsia P&I Services where he supervised a team of claims handlers and master mariners. He has over 20 years of marine insurance experience in underwriting, claims and broking.
At Markel International Singapore, Mr Fordham will report to Principal Officer and Managing Director Matthew Cannock, and will focus on boosting the company’s marine liability business in Asia.
XL Catlin promotes new CUO for Global Marine
Re/insurer XL Catlin has promoted Rob McAdams to the position of Chief Underwriting Officer for Global Marine.
Previously, McAdams held the role of UK/ Ireland Marine Leader.
Prior to joining legacy XL in 2000 he held positions at Reliance National in New York. He is an associate of the Chartered Insurance Institute, and a chartered property and casualty underwriter.
Liberty Mutual names energy underwriting leader
Liberty Mutual Holding Co. Inc. named Jessica Dekermanji as Senior Vice President and Chief Underwriting Officer of its National Insurance Specialty Energy Unit.
Ms Dekermanji will lead the energy insurance unit and will report to David Perez, Executive Vice President and General Manager of Liberty Mutual’s Commercial Insurance Specialty Unit.
Ms Dekermanji joined Liberty Mutual in 2002 and was most recently senior underwriting manager in its specialty operations.
AGCS loses energy underwriter Williams to Lancashire
Allianz Global Corporate & Specialty (AGCS) senior onshore energy underwriter Adam Williams is to move to Lancashire as part of the insurer’s efforts to build its onshore book.
Williams joined AGCS in 2010, having previously worked on the broking side.