Energy Underwriters Hope for Rising Premium Tides

With the political fallout from the attacks on Saudi Arabia’s oil facilities continued to rumble on Energy underwriters were hoping for an uptick in rates as premium levels continue to shrink.

Speaking at the International Union of Marine Insurance’s (IUMI) annual conference in Toronto, James McDonald, Chair of the IUMI Offshore Energy Committee reported a further reduction in global offshore energy premiums.

Total global energy premiums were reported to be $3.4 billion representing a 3% reduction from 2017. This continued the downward trend: premiums in 2017 were down 5% on the previous year and premiums in 2016 were down 21% on 2015.

Mr McDonald told delegates: “The drop in premium income has largely followed the oil price which has dipped by around 20% over the past year. Oil demand is being affected by trade tensions which is impacting economies across the world. Conversely, geopolitical considerations in Venezuela, Iran, Libya and Syria in tandem with OPEC and Russia’s agreement to cut production is squeezing supply.”

However there was a silver lining last year despite the fall in premium levels.

“Whilst premiums have again fallen, 2018 is only the second year in a decade that they have stayed ahead of claims,” he added. “2018 has seen a historically low number of large losses to date but there are several potential large losses in the pipeline, including possible LOPI (loss of production income) losses on two FPSOs and a significant blowout in Indonesia. 2018 is still an immature year and given the increased activity in the oil and gas sector, it is likely to have a longer tail than the years immediately preceding it”.

While there is a clear sentiment and some modest indications that a return to profitability is imminent. Delegates were told, several challenges remain

These include aging infrastructure and the operation of platforms well beyond their design life, an increasing cyber threat and climate change which is leading to more frequent and severe windstorms and floods; and the spectre of climate change litigation.

Rising and unsustainable acquisition costs coupled with disruption to distribution and the need for new ways of working with changed procedures and processes; and capital expenditure to ensure IT infrastructure is fit for purpose, are also challenges to be met.

Mr McDonald concluded: “On balance, it appears that the offshore energy market has turned a corner and that a stabilised oil price is assisting a possible return to profitability – to use a marine analogy, a rising tide lifts all boats”.