ENERGY

On the negative side, there was a deterioration of the market’s loss record particularly for 2021. This was exacerbated by the premium income levels for 2022 being lower than expected post Covid-19; the estimated overall global Upstream premium has the potential to be eradicated in the event of a catastrophic loss albeit recent history demonstrates that while there is potential for such a loss, it remains an unusual occurrence.

On the positive side, commodity prices remain strong; OPEC’s output has been cut and global consumption continues to increase post pandemic. Dependence on conventional oil and gas has been highlighted by sanctions on Russia as well as reduced domestic production in USA. This provides expectation that market premium volume will increase on the back of a greater industry activity.

The Downstream market’s primary issue is loss activity. There has been a substantial number of losses in 2022; reports estimate nearly USD 7.0bn of losses although many will be retained, placed with captives, or insured under Everen, the industry mutual. However, many have directly affected the market: Freeport LNG, One Oak, OMV, PKN with an estimated loss expectation of between USD 3.5bn and USD 4.0bn in aggregate which compares to an overall global market premium pot of USD 3.5bn.

The existing panel of leaders are not seeing their position under attack. Brokers report that underwriters prefer to focus on negotiating increased line sizes for preferred business rather than to compete directly against the incumbent market. Although, to counter this, brokers are themselves attacking business and as is tradition, many of the larger government owned programmes are tenders on a regular basis.

We have noticed that renewals are coming in later than normal, this, we believe, reflects the pressure brokers are under to mitigate the increased rates imposed on the back of last year’s poor performance and subsequent reinsurance market hardening.

Despite the overall hardening market conditions, the very best programmes, with well-engineered risks, loss-free records, and significant premium income, remain over-subscribed. This reflects the allure of premium volume; it is likely that on such programmes line size may be under threat. Brokers are also using this dynamic to place excess layers and require lines across (both) policies to be offered.

Barents Re is strongly positioned to leverage its capacity deployment across the spectrum of Energy re/insurance activity as a composite capacity provider, with the market gears spinning at very different speeds. The ‘subscription market’ has long since collapsed in the downstream sector, and the upstream market is beginning to default to differential terms. Electronic re/insurance placement is here to stay and will accelerate this process. Our Energy underwriting team is well qualified to navigate these challenging waters and continue to provide positive results.

Barents Re remains well-positioned with core relationships spread through all the Energy brokers. Although a substantial part of our income is generated by the “big three”, we continue to source opportunities from brokers of all sizes.