There was a 3% year on year fall in global offshore energy premiums in 2018 to $3.4bn, James McDonald, Chair of the IUMI Offshore Energy Committee reported on Tuesday September 17th at the International Union of Marine Insurance (IUMI) conference in Toronto, Canada.
McDonald said that these continued the downward trend: premiums in 2017 were down 5% on the previous year, which were in turn 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 are 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, are squeezing supply.”
On the positive side, McDonald said that, while premiums had fallen again, 2018 was only the second year in a decade that they had stayed ahead of claims. 2018 had seen a historically low number of large losses to date, but there were several potential large losses in the pipeline, including possible loss of production income on two FPSOs, and a significant blowout in Indonesia.
McDonald warned that, given the increased activity in the oil and gas sector, 2018 was likely to have a longer tail than the years immediately preceding it”.
Sentiment appeared to be driving the current market and there were modest indications that a return to profitability was imminent.
However, McDonald said that several challenges remained 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.
- 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.
- Increased underwriting expenses.
McDonald concluded that “on balance, it appears that the offshore energy market has turned a corner and that a stabilized oil price is assisting a possible return to profitability. To use a marine analogy, a rising tide lifts all boats”.