When Peter Welton (pictured) was promoted to the role of UK head of energy at AXA XL, the company’s chief underwriting officer for global energy, Huw Jones, stated his confidence that Welton’s high level of technical expertise and knowledge would strengthen AXA XL’s energy business during a period of transformation in the global energy market.
Here, Welton discusses this period of transformation and the key risks and opportunities associated with times of upheaval and how this will likely impact brokers working within this sector.
Born in London and growing up in the South East of England, Welton began his career in insurance in 2000 when he secured a place on the Marsh Graduate Scheme. He remained with Marsh until 2005 before joining the non-marine direct and facultative property team at Catlin Underwriting Agencies Ltd (now AXA XL).
For the next decade of his career, Welton held several underwriting roles within the energy sector before becoming the senior class underwriter for downstream energy and power in 2016 prior to his current role. He was first drawn to the energy market, he said, due to the sheer size of the energy companies which provide so many with such essential everyday products.
“During meetings with clients,” Welton said, “I’m always fascinated to learn more about how they operate and formulate their business plans for success – the level of technical complexity within our energy clients’ operations is astonishing.”
With his extensive experience, Welton is well-placed to acknowledge the significant period of transformation occurring within the global energy insurance market. This, he said, is a technical line of business that is constantly evolving. He highlighted how underwriting methods are continually developing as clients continue to make strides technologically and operationally in renewable energy and shale-gas extraction.
“At the same time,” he said, “changes to underwriting decision-making are also driven by lessons learned from large and/or frequent losses, which we use to re-evaluate loss scenarios and maximum probable loss calculations, particularly around emerging risks such as cyber.”
The upstream market, Welton outlined, has seen reduced activity levels and benign loss activity - and while a lack of losses has led to profitable performance, it has also attracted new capital to the market. In the downstream energy and power generation sectors, he said, several years of low natural catastrophe activity and a flurry of new players played a part in premium rates being driven abnormally low for these lines of business.
However, Welton noted, it has subsequently been revealed that the market was under-priced, so management is introducing increased underwriting discipline, and, for some companies, this has meant exiting this class of business altogether. The result of this, he said, is double-digit rate increases, which look set to continue for the short term.
With regards to energy liability, he said, capacity is reducing due to some very significant losses in the US sector, including refining, utility and wildfire losses and, as a result, rates are also increasing.
What this means for brokers, Welton stated is that though large energy companies will always need insurance to cover their assets and exposures, as the market continues to transform, brokers will need to be flexible to the needs of their clients and the appetites of their insurers.
“[Brokers] will need to adapt in order to find a solution that works for both parties,” he said.
This period of transformation within the global energy market comes with several key challenges, Welton stated. Aside from traditional elemental and non-elemental risks, he said, new challenges such as clients’ changing strategies and emerging risks are giving cause for concern.
Clients today, he said, are increasingly focused on issues such as decarbonisation, recycling and reduced reliance on fossil fuels. He outlined how regulatory changes such as the International Maritime Organisation (IMO) 2020 ruling, which forces the marine sector to switch to low sulphur fuels, are also impacting clients’ strategies.
Welton believes there are many opportunities to be found in this exciting time of transformation within the global energy market and he outlined how: “A new dawn of technology is revolutionising the way we transact business, increasing efficiency and also enabling clients to be more effective with their output.”
Renewable power also presents many possibilities, Welton stated, while the evolving pattern of elemental and non-elemental losses from a frequency and severity standpoint is challenging pricing models.
The industry will always face times of transformation and uncertainty, he said.
“Our job is to uphold our high standards while balancing sustainable pricing with meeting our clients’ expectations,” he said. “We want to ensure that we are a long-term partner with sustainable solutions that meet our clients’ insurance needs.”
