Alesco Specialist wholesale energy broker in London

Transcription

1 London Energy Market Overview Derek Thrumble Paul Finlay Alesco Specialist wholesale energy broker in London Formed in July 2008 Covering all Energy classes 35-strong team with average broking experience of 15 years Now placing over USD 250M of premium into London and international markets Energy Broker of the Year 2010 Reactions London Market Awards Key partner/affiliated offices in Houston, Bermuda, Perth, Calgary, Singapore, Brazil 1

2 Lloyd s Energy Loss Ratios Current incurred losses ratios ( as at 30/06/2012) all Energy Risk codes. 2010/11 are still developing. Year Loss Ratio Premium Note % 800m Windstorm losses % 846m Windstorm losses % 1,221m % 1,162m % 1,238m Windstorm losses % 1,652m % 1,587m % 1,612m Very early; 2

3 Upstream Energy 2012 Capacity and Demand Despite reinsurance pressures, still oversupply of capacity for the vast majority of fbuyers, with global lcapacity estimated at USD 3.5bn. Good pricing options available if one can avoid linear (similarly structured) renewals. Values/exposures continue to increase and clients are looking at higher limits particularly l for Offshore control of Well and Pollution. Some compulsory coverage (OPA, OPOL) have already imposed higher limits. Year Plant Type Upstream Energy Major losses in review Event Location Est. Prop, OEE and BI Loss (USD m) at 2012 prices Oct 2007 Rig Heavy Weather Bay of Campeche, Mexico June 2009 Platfom Collision Ekofisk, North Sea Aug 2009 Well Blowout Timor Sea, Australia April 2010 Rig Fire/lightning/explosion Gulf of Mexico, USA May 2010 Rig Heavy Weather/Leak Venezuela 250 Feb 2011 FPSO Heavy Weather North Sea 450 Mar 2012 Rig Blowout North Sea

4 Date Plant Type Upstream Energy 10 Largest Property Losses since 1972 Event Location Est. Prop Loss (USD m) at 2012 prices July 1988 Platform Fire/Explosion Piper Alpha, North Sea 1,800 June 2009 Platfom Collision Ekofisk, North Sea 830 March 1989 Platform Fire/Explosion Baker, Gulf of Mexico 820 August 1991 Platform Structural Failure Sleipner, North Sea 780 May 2001 Semi-sub Explosion/Fire/Sinking Campos Basin, Brasil 770 platform April 1988 Platform Fire Enchova, Campos Basin, 690 Brasil April 2010 Semi-sub drilling rig Fire/Explosion/Blowout Gulf of Mexico 590 November 1992 Platform piles Mechanical Damage North West Shelf, Australia 520 July 2005 Platform Fire/Explosion Mumbai High field, India 470 Feb 2011 FPSO Heavy Weather North Sea 450 USD, m Upstream Energy 2012 Capacity and Demand Top 20 Upstream Energy Markets by Capacity Market * GoM wind writer 4

5 Liabilities Outlook for 2012 Lloyd s 2012 business plan requirements for energy liabilities: Highlighted that this class of business is fundamentally under-priced. Increased focus and pressure on Energy Liabilities contained within packages and for section to be stripped out following several large losses Unless managing agencies have employed specific liability experts in their underwriting team (suggested in Tom Bolt s speech at Houston Mariners Conference in Sep 2011) Loss Ratio % % % % % % 50.00% 0.00% Liabilities Historical Lloyd s Loss Ratios Lloyd's Energy Liabilities (EA/EB/EG/EH) - Loss Ratio development as at end Q Period of Development (Years) 2011 Actual 2011 Projected 2010 Actual 2010 Projected 2009 Actual 2009 Projected 2008 Actual 2008 Projected 2007 Actual 2007 Projected 2006 Actual 2006 Projected 2005 Actual 2005 Projected 2004 Actual 2004 Projected 2003 Actual 2003 Projected 2002 Actual 2002 Projected 5

6 Offshore liabilities Outlook for 2012 Estimated Offshore Liability Capacity by region (USD m) US London & European Bermuda P&I Clubs Offshore liabilities Outlook for 2012 Offshore E&P Focus on pollution from well - underwriters requiring more well info and trying to underwrite on a per well basis. More clash information also being requested by some e.g. contractor identity. Offshore Construction Difficult to obtain Consequential Loss following Damage to Existing Property. OPA market: OPA market has settled down with no increase in OPA limits imposed by US authorities as first expected after Macondo. 6

7 Onshore liabilities Outlook for 2012 Upstream onshore: There is still limited London capacity for US upstream operations with US, Bermuda & European markets being the main players. International capacity is healthy with market conditions stable to soft with new capacity available. Midstream Sizeable increases are being sought by insurers with capacity in London drying up for US based/exposed operations following a number of pipeline losses in the US last year. Capacity in Bermuda is also beginning to retreat. Conversely, International midstream capacity is healthy and stable, with pricing generally flat. Downstream Energy 2011 in review Munich Re reported that 2011 was the worst year on record for Natural Catastrophes losses totalling USD105,000,000,000 to the reinsurance market. There have been no notable withdrawals or new entrants in the downstream marketplace with risk capacity maintained at USD 3.5bn Reinsurers still compete for well engineered / non natural catastrophe risks. The first quarter of 2012 has seen a modest level l of loss activity i in the hydrocarbons sector year to date. Vertical placements are very prevalent in brokers marketing strategy 7

8 Downstream Energy Catastrophe exposure focus Underwriters interpretation of RMS11 catastrophe modelling causing inconsistency in market s risk rating. The main players mandated by management to impose rate rises particularly in CAT areas. Focus on technical rating rather than market share. Deployment of Reinsurance capacity to local regional hubs has promoted local competition. Downstream Energy Outlook for 2012 Market retrenchment Fewer Leader markets and less challengers willing to quote against the incumbent leader. Flat renewals are achievable where loss record is favourable and risk profile is not exposed to natural catastrophe. There are signs that the US marketplace is starting to harden as local retailers seek alternatives to indigenous capacity. Increased number of tenders as Assured s seek best terms at the expense of continuity with incumbent panel. 8

9 Year Power/Downstream Energy Major losses in review Plant Type Event Location Est. Prop and BI Loss (USD m) at 2012 prices Aug Refinery Fire/lightning/explosion Texas, USA Feb 2008 Refinery Fire/lightning/explosion Texas, USA 660 Sep 2008 Refinery Windstorm Texas, USA 455 Oct 2008 Power Fire/lightning/explosion Italy 460 Station Jul 2010 Pipeline Leak Michigan, USA 320 Jan 2011 Plant Fire/lightning/explosion l Alberta, Canada 1,340 Jul 2011 Power Station Fire/lightning/explosion Cyprus 350 Downstream Energy 10 Largest Property Losses since 1972 Date Plant Type Event Location Est. Prop Loss (USD m) at 2012 prices Est. Bus. Int. Loss (USD m) at 2012 prices October 1989 Petrochem Vapour Cld Expln Pasadena, Texas 1, January 2005 Oil Sands Fire Alberta, Canada 222 1,520 January 2011 Oil Sands Fire Alberta, Canada February 2008 Refinery Fire/Explosion Big Spring, Texas May 1988 Refinery Vapour Cld Expln Norco, Louisiana Sept 1998 Gas Explosion Longford, Processing Victoria, Australia January 2004 Gas Fire/Explosion Skikda, Algeria Processing Sept 2001 Petrochem Explosion Toulouse, France June 2000 Refinery Fire/Explosion Mina Al-Ahmadi, Kuwait Nov 1987 Petrochem Fire/Explosion Pampa, Texas

10 Downstream Energy Outlook for 2012 Market Capacity vs Rate Premium Averge Rate USD bn Year Rate (%) Downstream Energy Leaders Capacity USD, m Berkshire Chartis ACE Munich Swiss Re Allianz Liberty Scor CV Starr QBE Zurich Hathaway Re (O'Farrell) Market XL 10

11 Power 2011 in review 2011 was a very difficult year for insurers writing business in the power generation sector with over USD 2 billion of losses registered in the first quarter. A mixture of natural catastrophe losses and exceptional machinery breakdown losses in excess of USD 100 million combined with the sector s usual attritional losses pushing loss ratios above 100% again. Response from insurers has been quite diverse. A minority have withdrawn capacity from the sector, others are insisting on mandated rate increases, whilst others are moving away from writing primary business. Power Implications for 2012 All insurers are taking a greater risk engineering focus to drive down attritional machinery breakdown losses, particularly with respect to Combined Cycle Gas Turbines and Transformers Updated engineering surveys and client s pro-active response to risk recommendations - key to securing market support to competitive terms Business Interruption deductibles are a key focus to insurers Capacity within the sector remains about USD 4 billion but move by markets away from primary USD 25m layer may add to total premium costs. 11

12 Renewables 2011 in review The Renewable Energy insurance market continues to grow with new entrants and new capacity as the industry grows worldwide. Rates and deductibles remain competitive across the sector for proven technology but a general wariness of new technology and Asian manufacturers with limited industry experience prevails due to previous losses. Underwriters concerns tend to be focused on Business Interruption exposure - particularly availability of cranes and spares for wind farms, long interconnections to grids, and offshore substations and cables. Renewables Outlook for 2012 New products continue to be created, but do not always stand up to close scrutiny, particularly l when covering availability and performance of equipment for developers outside of manufacturer warranties. Increases in natural catastrophe pricing due to a lot of nat cat activity in 2011 can have a disproportionate impact on renewals for cat exposed accounts. 12

13 OIL Latest developments Bifurcate the Aggregation Limit into two components 8 Business Sector and Designated Named Windstorm (DNW) events. Board set newly split Aggregation Limits to $900 million for non-dnw events and $750 million for DNW events Per occurrence limit to increase from $250 million to $300 million for all events besides DNW - significant step after decade with no meaningful limit changes. Endorsement approved on 28 March 2012 to allow OIL members to satisfy Offshore Pollution Liability Association (OPOL) Evidence of Financial Responsibility (EFR) purposes (applicable to North Sea facility operators) OIL trying to asttract 3-5 new members per annum. 3 new joiners in 2011 and one so far in 2012 (Canadian Oil Sands) Losses in 2012 to date higher than forecast - $600M in six months to 30/06/ Natural Catastrophes Major events Wildfires Canada May Earthquake/ Tsunami Japan 11 March Hurricane USA, Caribbean 22 Aug 2 Sept Severe storms, Tornados USA April May, Drought USA Wildfires Oct USA April, September Floods, landslides Guatemala, El Salvador Oct Landslides, Flash Floods Brazil 12, 16 January Floods USA April-May Floods Italy, France, Spain 4-9 Nov Winter Storm France, Germany, Switzerland Earthquake Turkey 23 October December Floods Pakistan Aug-Sept Drought Somalia Oct 2010 September Floods Thailand Aug-Nov Tropical Storm Philippines December Cyclone Australia 2-7 February Floods Australia Dec 2010 January Earthquake New Zealand 22 February; 13 June 13

14 Earthquakes Earthquakes mainly occur near fault lines but can occur almost anywhere (intraplate earthquakes) Astrongintraplate earthquake affects a much larger area than a fault based one Ground shake Primary cause of damage in Agadir, 1960 Liquefaction Primary cause of damage in Christchurch, 2011 Fire Following Primary cause of damage in San Francisco, 1906 Landslide Contributed to majority of all major earthquakes Hampers relief efforts North America Earthquake Hazard Large catastrophic earthquakes are rare but devastating Earthquakes don t kill people, buildings kill people. Updated Building Codes need to be strictly enforced RMS have updated Industry loss curves and exposure database Previously surveyed buildings may need to be re-surveyed to ensure correct alignment Liquefaction can move a building out of alignment Even 2.5cm out of alignment results in total loss 1960 Hotel Saada in Morocco, pre and post 5.7Mw earthquake 15 seconds duration, over 1/3 of Agadir s population killed 14

15 US Hurricane Significant changes to RMS version 11 over version 10: New Storm surge model allows significant intensity changes before landfall Allow for complex coastlines Includes significant waves in the Offshore Platform model Maximum Storm Surge Region for Hypothetical Hurricane (Courtesy of US Army Corps of Engineers) Dislodged oil rig struck Cochrane Bridge in Mobile, AL Image: AP Gulf of Mexico Offshore Platform Hurricane Model Updated Loss Model and Exposure Database New Explicit Wave hazard model New understanding of interactions between: wave height water depth wave period currents etc. Active Gulf of Mexico Offshore Platforms Source: Minerals Management Service (MMS) data as interpreted by API Data Current as of 08/07/09 Enhanced IR4 Gulf of Mexico AOI of Hurricane Ike WeatherTAP.com 15

16 US Wildfire RMS only provides hazard data for California which has the highest occurrence of loss Additional states are under consideration Hazard data created from many attributes Historical fire data Spatial frequency, size and duration Elevation, slope & aspect Land cover Plant life, urbanicity Historical weather patterns Major US fires from 2001 July 2012 (Map created by IDV Solutions) 16