This document provides an overview and analysis of the energy and marine insurance industry after the 2008 financial crisis and recession. It discusses major factors influencing the industry, including losses from earthquakes and oil rig explosions. While upstream and downstream energy markets remain oversupplied, overall profitability has continued. However, the recent Tohoku earthquake in Japan was the costliest insured loss ever and will significantly impact energy insurance markets going forward. Regional marine insurance markets are also in flux with opportunities and challenges.
Energy Reform and Local Content -Mining Sector (Final)
Post Recession Energy Insurance Outlook
1. “Post Recession Outlook of the Energy & Marine Insurance Industry” Presented By: AFTAB HASAN CEO Maritime Management Company (MMC)/Arya Insurance Brokerage Company Dubai - U.A.E. 18th – 19th April 2011
14. The worldwide Energy Industry ravaged by the economy and financial crisis over the last two years has passed through its darkest hour.
15. Global GDP of the key driving nations went down drastically.
16. Global activity in the key areas – Production / Trade / Oil / Non-Fuel Commodity Prices also affected badly.
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20. Before this tragedy struck, the Macondo blowout and oil spill had resulted in the largest Operators Extra Expense (OEE) loss in the upstream market’s history.
22. Notwithstanding the impact of Macondo and the Japan earthquake, both upstream and downstream markets remain overcapitalized.
23. Furthermore, a new series of energy losses are also contributing to the break on any market softening, at least in the short term.
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25. The increase in sanctions against countries such as Iran has brought new challenges in 2010. Underwriters and brokers are constantly working to ensure they remain ‘Compliant’ within the various different sanction regimes.
26. The European Union’s latest sanctions directive is due to be ratified and while its impact on insurers is not yet clear, anyone even considering ways in which sanctions could be avoided may be prosecuted under the ‘Anti-Avoidance Clause’.
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28. THE TEN MOST EXPENSIVE OPERATORS EXTRA EXPENSE (OEE) LOSSES IN HISTORY The Macondo loss of April 20, 2010 dwarfs all other OEE losses in the Energy Loss Database – even on an inflation-adjusted basis. But what lessons have been learned in its immediate aftermath? Source: Willis Energy Loss Database, April 1, 2011
29. After Japan Quake: What next with the Energy Insurance Markets? We all know that the catastrophe caused by the recent Japanese earthquake and tsunami which has brought enormous tragic loss tolife and almost incomprehensible destruction of assets, our first thoughts will be what next for the energy insurance markets? It is of course far too early to try completely accurate calculation of the way in which the energy markets might react over the course of the next few months. However, what we can do is summarize what we know to date and express both the positive and negative factors that need to be considered by energy insurance buyers. To begin with, we will consider some questions that we believe may be in the minds of many of us as this tragedy continues to unfold.
35. WHAT HAS BEEN THE INITIAL IMPACT ON THE REINSURANCE MARKETS?
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37. General State of the Market Post Recession ENERGY UPSTREAM Almost five months to the day after the tragic blowout of its Macondo well on April 20, BP announced that the well had been permanently sealed, and abandonment operations had commenced. The immediate disaster may be over for BP but the aftermath for the Oil and Gas Industry in general has only just begun. Whilst BP themselves did not buy insurance, the loss the market is ultimately likely to suffer from control of well (including clean-up costs) and Liability Policies purchased by BP's Joint Venture Partners and Contractors has been estimated by some commentators to be in excess of USD 3Bn.
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39. Major losses are particularly felt by the fledgling Singapore Market
40. Although 2009 was not a bumper year in terms of profitability, it was hardly a disastrous one either
41. The new Gulf of Mexico rating model remains untested following a benign windstorm season
44. UPSTREAM ENERGY PORTFOLIO STILL LOOKS PROFITABLE So in reality 2010 – despite including both Macondo and the Gryphon A loss – might still turn out to be a profitable year for most direct and reinsurance underwriters; indeed, it could even be argued that both losses were blessings in disguise for much of the direct upstream market.
47. THE UNDERWRITING ENVIRONMENT WITH DOWNSTREAM Downstream insurers are beginning to compete for business in a manner not seen since the last truly soft market in 1999-2000. While North American market capacities remained stable, its International counterpart continued to grow. Various markets became more prominent, including Chartis, CV Star, Talbot, Validus, Torus and Zurich. Following a benign underwriting year in 2009, the portfolio remained profitable, despite the softening market conditions. The level of attritional losses has fallen to the point where rates could fall further before the inherent profitability of the class is threatened. The degree of aggression shown by individual insurers is now driving competition in the market, rather than overall capacity. Regional markets are contributing to the softening process.
50. DOWNSTREAM ENERGY PORTFOLIO STILL LOOKS PROFITABLE The improved loss record since 2001 may well be down to general improvements in risk control and mitigation by the downstream industry, encouraged by the risk engineering approach taken by the market in recent years.