James McDonald, Chair of the IUMI Offshore Energy Committee, reported a 3% decline in global offshore energy premiums in 2018, down to $3.4bn. Addressing the IUMI conference last week in Toronto, Canada. This continued a multi-year downward trend: premiums in 2017 were down 5% on the previous year and premiums in 2016 were down 21% on 2015.
McDonald said that “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.”
McDonald noted that, while premiums had fallen again, 2018 was only the second year in a decade that they managed to stay ahead of claims. 2018 saw a historically low number of large losses, although there were several potential large losses in the pipeline, including possible LOPI (loss of production income) losses on two FPSOs, and a significant blowout in Indonesia.
McDonald said that 2018 was still an immature year and that, given the increased activity in the oil and gas sector, it was likely to have a longer tail than the years immediately preceding it. “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,” McDonald concluded.