James McDonald, chair of the Offshore Energy Committee of the International Union of Marine Insurance (IUMI) has reported a further reduction in global offshore energy premiums, raising concern for underwriters.
McDonald who made the remark at IUMI conference in Toronto, Canada said global premiums in that sector were reported to be $ 3.4 billion which represented a 3 percent reduction from 2017, reflecting the same situation in 2017 which was a down 5 percent on the previous year and premiums in 2016 were down 21 percent on 2015.
James McDonald explains: “the drop in premium income has largely followed the oil price which has dipped by around 20 percent 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.”
“Whilst premiums have again fallen, 2018 is only the second year in a decade that they have stayed ahead of claims. 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”.
Sentiment appears to be driving the current market and there are modest indications that a return to profitability is imminent. However, several challenges remain for underwriters including:
Aging infrastructure and the operation of platforms well beyond their design life; increasing cyber threat; climate change leading to more frequent and severe windstorms and floods; and the spectre of climate change litigation; rising and unsustainable acquisition costs.
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