The trend for consolidation in the insurance sector continued in 2017 and affected the energy space with commensurate concentration of capacity in fewer hands. The pursuit of scale amongst oil and gas companies continues.
Energy insurance is complex and highly specialised with market players needing to grapple with the risks inherent in hazardous locations on the one hand and the geo-political environment in which their clients operate on the other. Reinsurance capacity is generally segmented into upstream and downstream with only a handful of truly composite players able to write packages comprising both. Barents is one such player.
Historically, the energy pool of risk is well diversified by virtue of the fact that most countries have their own strategic Oil and Gas infrastructure. The trend for National Oil Companies to become Supra National is changing this dynamic and requires care in understanding risk accumulation and care in pricing.
Reinsurance capacity for upstream risks was at an all-time high in 2017 at circa USD8bn with relatively low levels of loss activity. The absence of upstream losses reflected the low oil price and consequent reduction in activity in exploration and development. Evidence of increased activity is growing following the recent oil price recovery with premiums to be set against rising exposures related to new drilling activity and new projects. The rating environment for upstream energy was close to historical lows, although we are seeing growing recognition that the bottom of the cycle has been reached with the need for a more realistic approach.
Reinsurance capacity for downstream exposures such as refining and petrochemicals was also at an all-time high in 2017 between USD7bn and USD8bn. However, a number of shock losses have led to some capacity withdrawals and signs of a stabilizing market.
Operational flexibility and nimble cost structure will, as always, remain integral to trading competitively in the coming year. Those markets providing truly composite upstream and downstream capacity and providing careful attention to clients’ needs have the opportunity to successfully navigate a challenging energy market. Barents is well equipped to meet the challenge.