LondonLondon Energy Market Overview Energy Market Overview · 2018. 4. 4. · July 2005 Platform Fire/Explosion Mumbai High field, India 470 Feb 2011 FPSO Heavy Weather North Sea

8/13/2012

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London Energy Market OverviewLondon Energy Market Overview

Derek ThrumblePaul Finlayy

Alesco – Specialist wholesale energy broker in London◦ Formed in July 2008y◦ 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

ENERGY SYMPOSIUM 2012

Key partner/affiliated offices in Houston, Bermuda, Perth, Calgary, Singapore, Brazil

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Current incurred losses ratios ( as at 30/06/2012) – all Energy Risk codes. 2010/11 are still developing.

Year Loss Ratio Premium Note2004 115% £800m Windstorm losses

Lloyd’sLloyd’s–– Energy Loss RatiosEnergy Loss Ratios

2004 115% £800m Windstorm losses2005 305% £846m Windstorm losses2006 36% £1,221m2007 84% £1,162m2008 117% £1,238m Windstorm losses2009 61% £1,652m2010 69% £1,587m


2011 23% £1,612m Very early;


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• Despite reinsurance pressures, still oversupply of capacity for the vast

f b h l b l

Upstream EnergyUpstream Energy2012 Capacity and Demand2012 Capacity and Demand

majority of buyers, with global capacity 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

l l f ff h l f ll


particularly for Offshore control of Well and Pollution.

• Some compulsory coverage (OPA, OPOL) have already imposed higher limits.

Upstream EnergyMajor losses in review 2007‐12

Energy Market Update

Year Plant Type

Event Location Est. Prop, OEE and BI Loss (USD m) at 2012 prices

Oct 2007 Rig Heavy Weather Bay of Campeche, Mexico

440

June 2009 Platfom Collision Ekofisk, North Sea

830

Aug 2009 Well Blowout Timor Sea, Australia

340

April 2010 Rig Fire/lightning/explosion Gulf of Mexico, USA

820

May 2010 Rig Heavy Weather/Leak Venezuela 250


May 2010 Rig Heavy Weather/Leak Venezuela 250Feb 2011 FPSO Heavy Weather North Sea 450Mar 2012 Rig Blowout North Sea 375

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Upstream Energy10 Largest Property Losses since 1972


Date Plant Type

Event Location Est. Prop Loss (USD m) at 2012 prices

July 1988 Platform Fire/Explosion Piper Alpha, North Sea 1,800June 2009 Platfom Collision Ekofisk, North Sea 830March 1989 Platform Fire/Explosion Baker, Gulf of Mexico 820August 1991 Platform Structural Failure Sleipner, North Sea 780May 2001 Semi-sub

platformExplosion/Fire/Sinking Campos Basin, Brasil 770

April 1988 Platform Fire Enchova, Campos Basin, Brasil

690

April 2010 Semi-sub drilling rig

Fire/Explosion/Blowout Gulf of Mexico 590


drilling rigNovember 1992

Platformpiles

Mechanical Damage North West Shelf, Australia 520

July 2005 Platform Fire/Explosion Mumbai High field, India 470Feb 2011 FPSO Heavy Weather North Sea 450

Upstream Energy2012 ‐ Capacity and Demand


120140160

Top 20 Upstream Energy Markets by Capacity

020406080

100120

USD

, m

Market* GoMwind writer


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Outlook for 2012Liabilities

• 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)


Historical Lloyd’s Loss RatiosLiabilities

350.00%

Lloyd's Energy Liabilities (EA/EB/EG/EH) - Loss Ratio development as at end Q4 2011 2011 Actual

2011 Projected

100.00%

150.00%

200.00%

250.00%

300.00%

Lo

ss R

atio

j

2010 Actual

2010 Projected

2009 Actual

2009 Projected

2008 Actual

2008 Projected

2007 Actual

2007 Projected

2006 Actual

2006 Projected

2005 Actual


0.00%

50.00%

Period of Development (Years)

2005 Projected

2004 Actual

2004 Projected

2003 Actual

2003 Projected

2002 Actual

2002 Projected

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Outlook for 2012Offshore liabilities

Estimated Offshore Liability Capacity by region (USD m)

300

400

500

600

700

800


0

100

200

US London & European Bermuda P&I Clubs


Outlook for 2012Offshore liabilities

• Offshore E&POffshore 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.

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Outlook for 2012Onshore liabilities

• Upstream onshore: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• Munich Re reported that 2011 was the worst year on record for

Natural Catastrophes – losses totalling USD105,000,000,000 to the reinsurance market.


2011 in review

• 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.

Th fi f 2012 h d l l f l i i i


• The first quarter of 2012 has seen a modest level of loss activity in the hydrocarbons sector year to date.

• Vertical placements are very prevalent in brokers’ marketing strategy

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Downstream Energy

• Underwriters’ interpretation of RMS11 catastrophe modelling causing

k ’ k


Catastrophe exposure focus

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


p y p ylocal regional hubs has promoted local competition.

• Market retrenchment – Fewer Leader markets and less challengers willing to quote against the incumbent leader.


Outlook for 2012Downstream Energy

• 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.

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Power/Downstream EnergyMajor losses in review 2007‐12


Year Plant Type

Event Location Est. Prop and BILoss (USD m) at 2012 prices

Aug 2007

Refinery Fire/lightning/explosion Texas, USA 315

Feb 2008 Refinery Fire/lightning/explosion Texas, USA 660Sep 2008 Refinery Windstorm Texas, USA 455

Oct 2008 Power Station

Fire/lightning/explosion Italy 460

Jul 2010 Pipeline Leak Michigan, USA 320

l l h l lb d


Jan 2011 Plant Fire/lightning/explosion Alberta, Canada 1,340

Jul 2011 Power Station

Fire/lightning/explosion Cyprus 350

Downstream Energy10 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 pricesOctober 1989 Petrochem Vapour Cld Expln Pasadena, Texas 1,400 860January 2005 Oil Sands Fire Alberta, Canada 222 1,520January 2011 Oil Sands Fire Alberta, Canada 728 615February 2008 Refinery Fire/Explosion Big Spring, Texas 475 185May 1988 Refinery Vapour Cld Expln Norco, Louisiana 317 331Sept 1998 Gas

ProcessingExplosion Longford,

Victoria, Australia450 195

January 2004 Gas Processing

Fire/Explosion Skikda, Algeria 630 -

Sept 2001 Petrochem Explosion Toulouse, France 540 65


June 2000 Refinery Fire/Explosion Mina Al-Ahmadi, Kuwait

590 -

Nov 1987 Petrochem Fire/Explosion Pampa, Texas 302 232

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Outlook for 2012Downstream Energy

1804 5

Market Capacity vs Rate Premium

Averge Rate

0

20

40

60

80

100

120

140

160

180

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Rat

e (%

)

US

D b

n

Year



Leaders’ CapacityDownstream Energy

300

350

400

450

0

50

100

150

200

250

300

Berkshire Hathaway

Chartis ACE Munich Re

Swiss Re Allianz Liberty Scor CV Starr QBE (O'Farrell)

Zurich XL

USD

, m

Market


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2011 in reviewPower

• 2011 was a very difficult year for insurers writing business in the power generation sector with over USD 2 billion of losses registeredpower 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.


Implications for 2012Power

• 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


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.

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2011 in reviewRenewables

• The Renewable Energy insurance market continues to grow with new entrants and new capacity as the industry grows worldwideentrants 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.

U d i d b f d B i I i


• 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.


Outlook for 2012Renewables

• New products continue to be created, but do not always t d t l ti ti l l h istand up to close scrutiny, particularly when covering

availability and performance of equipment for developers outside of manufacturer warranties.

• Increases in natural catastrophe pricing due to a lot of ‘natcat’ activity in 2011 can have a disproportionate impact on


renewals for ‘cat’ exposed accounts.

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Latest developmentsOIL

• 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 30/06/12.

Major eventsEarthquake/ TsunamiJapan11 March

WildfiresCanada

14-22 May

2011 Natural Catastrophes2011 Natural Catastrophes

Tropical StormPhilippines16-18 December

CycloneAustralia2-7 February

FloodsAustraliaDec 2010

FloodsPakistanA S t

FloodsItaly France

WildfiresUSA

April September

DroughtUSA

Oct 2010 -

Severe storms,Tornados

USA22-28 April20-27 May,

HurricaneUSA, Caribbean22 Aug – 2 Sept

FloodsUSAApril-May

ENERGY SYMPOSIUM 2012ENERGY SYMPOSIUM 2012

Dec 2010 –January

EarthquakeNew Zealand22 February;13 June

FloodsThailandAug-Nov

Aug-Sept

DroughtSomalia

Oct 2010 –September

EarthquakeTurkey

23 October

Winter StormFrance,

Germany, Switzerland

15-17 December

Italy, France, Spain

4-9 Nov

Landslides, Flash FloodsBrazil

12, 16 January

Floods, landslidesGuatemala, El Salvador

11-19 Oct

April , September

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Earthquakes Earthquakes mainly occur near fault lines but can occur almost

anywhere (intraplate earthquakes) A strong intraplate earthquake affects a much larger area than a

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

A strong intraplate earthquake affects a much larger area than a fault based one

ENERGY SYMPOSIUM 2012North America Earthquake Hazard

Primary cause of damage in San Francisco, 1906

Landslide ◦ Contributed to majority of all

major earthquakes◦ Hampers relief efforts

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 ensurePreviously 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 earthquake15 seconds duration, over 1/3 of Agadir’s population killed

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US Hurricane Significant changes to RMS version

11 over version 10:◦ New Storm surge model – allows

f h b fsignificant 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, ALImage: AP

Gulf of Mexico Offshore Platform Hurricane Model

Updated Loss Model and Exposure Database

New understanding of interactions between:◦ wave height◦ water depth

i dExposure Database New Explicit Wave hazard

model

◦ 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 IkeWeatherTAP.com

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US Wildfire RMS only provides

hazard data for California which has the highest occurrence of lossloss◦ Additional states are under

consideration Hazard data created

from many attributes◦ Historical fire data◦ Spatial frequency, size

and duration◦ Elevation, slope &

aspect


aspect◦ Land cover◦ Plant life, urbanicity◦ Historical weather

patternsMajor US fires from 2001 – July 2012

(Map created by IDV Solutions)

Documents

LondonLondon Energy Market Overview Energy Market Overview · 2018. 4. 4. · July 2005 Platform Fire/Explosion Mumbai High field, India 470 Feb 2011 FPSO Heavy Weather North Sea