Insurance premium rates rise in downstream energy market

The downstream insurance market has officially turned, and there is evidence of pure rate increases for Asian clients on all classes of business, says Mr George Nassaouati, head of Natural Resources Asia at Willis Towers Watson (WTW).

Writing in Energy Market Review 2020, published by WTW, he says that Asia is now well in tune with global market activity, with more consensus between Asian downstream insurers and their counterparts in London.

Whilst theoretical capacities have remained, deployment has been extremely cautious, with dollar deployments decreasing and a more robust referral process being followed prior to capacity being spelt out. The previous gap between Asia and London is therefore bridging quickly, with the latest rate increases ranging from 15% to 25% at the very least if loss free to averaging circa +25% on loss-free programmes and significantly higher for risks where claims have been reported.

Energy portfolios remain distressed globally and the scrutiny is now “overall portfolio” basis rather than on the regional basis seen during the last 18 months. Loss loadings have been overwhelming, and programmes which have enjoyed preferential underwriting in the past have been at the receiving end of this process.

Losses roll in

WTW is expecting the situation to worsen; it understands there are three major losses in Thailand that it believes may wipe out the premium pool for that region for 2020. Losses continue to roll in and insurers are pressing for rating increases at any opportunity, with no compromises.

“Buyers seem to be accepting the new status quo, based on what they are hearing from their brokers, insurers and counterparts; accordingly, they are no longer surprised when we inform them that they should expect a minimum 25% increase on their renewal, if not more. Interestingly, we are seeing insurers declining to negotiate any renewal terms on any programme in advance of three months of the renewal date in question,” Mr Nassaouati said.

Insurers wait to commit

Insurers are holding off to see how the market is moving and are avoiding early commitment on rates, knowing that they are likely to be able to charge more as the overall market continues to harden.

Some insurers are openly restructuring their portfolios and will wait until the last few days before renewal to commit to their participation. This strategy is designed is to enable them to leverage the highest increase possible, by observing how the programme renewal activity is developing. In WTW's view they are being very opportunistic, in line with others who believe that they were abused during the long soft market. Other major insurers, such as Allianz and AIG, have significantly reduced their capacity on certain programmes, sometimes by as much as 50% of their expiring participation; this is putting a lot of pressure on brokers to complete placements at the quoted terms.

Chubb is another insurer that is clearly making the most of the continuing market rate increases; they are quoting a significant number of programmes and are now leading many of those they quote. Their engineers are actively reviewing and assessing risks, which allows them to benchmark them against their technical rating model and thereby support a case to lead and/or write more programmes. Chubb have been dormant for many years in Asia, but are now very active, with all brokers knocking their door for lead terms. Chubb (and to an extent AIG) are sometimes reluctant to quote if they believe that their terms will be second guessed and not fully supported to get the programme home.

In addition, AIG are to close their energy underwriting capability in Oslo. Currently AIG underwrites energy out of 26 offices around the globe and this will reduce to three being London (HQ), Singapore and Houston. All AIG Norway business will be transferred to be underwritten in London at renewal

Source: Asia Insurance Review