LINE OF BUSINESS OVERVIEW | ENERGY
Barents Re energy underwriting team is based in London and is focused on providing re/insurance capacity for Energy risks worldwide, excluding those based in the USA. We avoid risks downstream of refining and related risks such as power, fertilizer and methanol. Our capacity is composite and responds to both upstream and downstream, separately or as a package.
Our trading environment for 2019 has been challenging for the downstream and upstream risks in different ways.
The downstream market is undergoing a recalibration following severe losses in the refining and petrochemical sector. This has led to strategic reductions in capacities offered by our competitors and some withdrawal from the class leading to a reduction in overall capacity available. This has allowed for rate increases ranging between 30% and 60% for clean business and higher for those with losses. Barents Re capacity remains intact as we have missed most of the losses in the sector which have fallen outside our appetite or scope. We are therefore well positioned to provide much needed capacity to our brokers and their clients and capitalize on the premium growth opportunity. The losses have thrown up the disparity in business interruption exposures and where business interruption is purchased, a new ‘Business Interruption Volatility Clause’ is now applied to all policies that provide for business interruption.
Clients are naturally seeking to mitigate rate increases and may opt to retain more risk: Coverages and limits may be pared back and retentions increased. Captives are also absorbing more of the commercial market placements. In addition, where revenues are weak, the business interruption sums insured are reduced. On balance however the downstream premium pool continues to increase whereas the overall capacity has decreased.
The upstream sector has not suffered losses in the same way and a precarious balance between profit and loss exists where policy rates are at historical lows and market capacity is at a historical high. The market however has reacted to the last US Hurricane season and set a floor on rate reductions and even sustaining modest increases at between 2.5% to 5%. Pressure on the upstream market overall premium has however been further exacerbated by lack of confidence in the oil price. This has led to reduced project activity, more modest drilling campaigns and lack of activity within the contractor fleets. Revenues are down and consequently the policy adjustments result in negative rather than positive premium flows.
As a composite provider of capacity and with the market gears spinning at very different speeds, Barents Re is strongly positioned to leverage its capacity deployment across the spectrum of energy re/insurance activity. The ‘Subscription market’ has long since collapsed in the downstream sector and the upstream market is beginning to default to differential terms. Electronic re/insurance placement is here to stay and will accelerate this process. Our Energy underwriting team is well qualified to navigate these challenging waters and continue to provide positive results.