A senior energy underwriter has admitted the market is still going through a challenging period but says Australia remains one of the most appealing regions to operate in.
Mark Nunn, energy underwriter for Markel International, told Insurance Business that both the energy market and the energy insurance market have been problematic since the large drop in oil price.
“Global activity has greatly reduced, rates have dropped, and the premium pool has shrunk,” said Nunn. “The downstream energy market has seen a series of billion-dollar losses in addition to attritional claims that has led to losses far outweighing the premium pool for a number of years.”
This, combined with huge losses in the marine market and record-breaking natural catastrophe events, has resulted in an increased focus on underwriting standards, said Nunn.
“There have been numerous withdrawals from marine and energy classes, as well as individual product lines,” he said. “Lloyd’s has taken a tough stance on business plans and continues to focus on the profitability of Lloyd’s syndicates, and this approach has also been mirrored internally in the company markets.”
Of course, these dynamics have had a knock-on impact in the APAC region, which has seen sizeable losses and the erosion of underwriting margins.
“There is a global focus to improve underwriting results and pricing has been hardening with significant rises being seen in the downstream sector,” confirmed Nunn.
Despite the myriad of challenges, Nunn says the Asia-Pacific market is actually relatively stable right now.
“Despite the increasing domestic demand for oil and gas in a number of Asian countries, we have not seen a major uptick in activity with drilling operations and construction significantly down on the heady days of the high oil price,” he said. “Driven by the new oil price environment, the majority of projects in the region are in-field subsea tie-in projects, rather than new developments.”
Likewise, Nunn said drilling has been heavily weighted in favour of development drilling rather than exploratory – however, there has been a noticeable increase in drilling activity in China, with a number of rigs previously idle returning to work and new builds heading off from their lay-up locations.
Looking specifically at Australia, Nunn said the country remains one of the most appealing markets to operate in – for a number of reasons.
“As one territory, it shows a very diverse spread of risk, with assets split between onshore/offshore, conventional/non-conventional plays, mega projects, global leading LNG technology and smaller independents,” he told Insurance Business.
“The owners and operators tend to be more sophisticated buyers of insurance and the advanced regulatory environment makes it one of the best risk environments we operate in.”
Nunn also praised brokers for their impact on the market, saying they can easily compete on a global stage, in terms of the service they provide to end customers.
“Australia has some of the most skilled and well-informed retail and wholesale brokers in the world, providing buyers with real opportunity of choice and variety,” he said.
Nunn also noted that Australia differs from some other markets in the region, as it has seen significant investment and development over the last 5-10 years, with a number of mega projects now coming online and a fair amount of M&A activity.
“The landscape is split between the big domestic and international players and a decreasing number of smaller independents who have been acorns for a number of years, waiting for the right investment, discovery or asset divestment from the big companies in order to fulfil their potential,” he said. “There is positive news in this regard with a number of the oil majors now assessing the viability of their late life assets.”
