lmg hopes to ‘re-energise’ talent workstream with jardine ... · e ews, at isi ay, ee ay issue...
TRANSCRIPT
MARKET NEWS, DATA AND INSIGHT ALL DAY, EVERY DAY
ISSUE 4,785
MONDAY 13 FEBRUARY 2017
LMG hopes to ‘re-energise’ talent
workstream with Jardine as sponsor
p8 p4-7
p3
Aon Benfield returns to growth in 2016
Focus: EnergyRisk and opportunity in Iran
insurance industry. Visit www.insuranceday.com/mergers-and-acquisitions
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NEWS www.insuranceday.com | Monday 13 February 20172
Reserve movement cuts into US resultsUnderwriting is tipping into unprofitability and the healthy reserve cushion is dissipating
Graham VillageGlobal markets editor
Major US property and casu-alty insurers are reporting fairly market-consistent results for 2016, deliver-
ing mostly low single-digit increases in premium income and larger reductions in net profitability amid tougher condi-tions for underwriting and investment.
Combined ratios inched up as a result of higher major loss activity, a worsen-ing of underlying loss trends and less favourable reserve development.
Rating agency AM Best said it ex-pected aggregate figures for the whole industry would show the US market recorded an underwriting loss last year, its first since 2012. The estimated combined ratio of 100.7% for 2016 rep-resents a 2.4-percentage point deterio-ration on the previous year.
Yet of the companies shown in the table, only Hartford recorded a ratio of worse than 100%, suggesting the larger players are outperforming the rest of the market. Hartford’s commercial lines book was profitable in 2016 but the personal lines account suffered from increased motor liability losses for both current and earlier accident years,
leading to a combined ratio of 104.8%, 7.8 points higher.
Hartford’s net profit fell heavily as the company posted a lower underwriting result and reduced investment gains, as well as taking a $423m charge connect-ed to an $1.5bn adverse development cover placed with Berkshire Hathaway to guard against excessive future asbes-tos and environmental liabilities.
Several companies are struggling to get on top of loss trends in the private motor sector. Travelers reported 3.9 percentage points of adverse reserve development in the fourth quarter in its agency auto division owing to an 8.8% rise in bodily injury losses. The division’s underlying combined ratio of 101.8% for the full year included 3.5 points of additional bodily injury loss damage.
Reserve deterioration is not con-fined to the private motor book. Markel reported overall reserve releases of $505.2m but that was down from $627.8m, partly owing to strengthening of $71.2m in the medical malpractice book and other medical-related busi-ness written by the US primary insur-ance division.
Hanover Insurance added $174.1m to its reserves for domestic business during the fourth quarter, mostly be-cause of an increase in high-severity losses in the commercial lines portfolio,
as well as higher than expected legal defence costs.
Moody’s said it expected industry- wide reserves would show a modest re-dundancy at the end of 2016, with a big decline in the motor reserve cushion, offset by reasonably healthy reserves for most commercial casualty lines. But the trend seems to be for a reduction in reserve releases followed by a period of overall deficiency.
Insurers are pleased investment con-ditions appear to be improving but, as Moody’s pointed out, rising interest rates generally correlate with loss cost infla-tion, and that could hit reserve adequacy and cause insurers to underprice risks.
As well as hopes for a better general investment climate this year, US insur-ers are excited president Donald Trump could promote a lower tax rate for do-mestic companies, potentially changing the profitability threshold for certain lines or individual pieces of business. If a tax cut does materialise, one response could be an increase in competition as insurers realise they can write business profitably at lower margins.
Companies House tomorrow starts our detailed look at the annual reporting season, taking a closer look at the large US property/casualty players. Check the Companies tab on insuranceday.com to track results as they are released for our sample of international companies.
Table: Selected major US insurers, performance 2016
Gross written premium ($m)
Change (%) Net profit ($m) Change (%)
Allstate 31,600 2.4 1,761 (14.3)
American Financial †5,981 †2.6 649 84.4
Assurant *5,007 *(40.0) 565 299.3
Chubb 34,983 46.9 4,135 45.9
Cincinnati *4,710 *5.1 591 6.8
CNA †10,697 †5.7 859 79.3
Hanover 5,397 (0.9) 155 (53.2)
Hartford *13,811 *1.7 896 (46.7)
Markel 4,797 3.5 456 (21.8)
Selective 2,237 8.1 159 (4.3)
Travelers 26,495 2.8 3,014 (12.4)
White Mountains *1,114 *(6.2) 413 38.6
WR Berkley 7,544 4.1 602 19.5
*net earned†non-lifeSource: company announcements/Insurance day database
NEWSwww.insuranceday.com | Monday 13 February 2017 3
LMG hopes to ‘re-energise’ talent workstream with Jardine as sponsorXL Catlin’s chief experience officer will lead key area of work
Michael FaulknerEditor
XL Catlin senior execu-tive Paul Jardine has become the new spon-sor of the London
Market Group (LMG) talent and diversity workstream, Insurance Day can reveal.
The workstream has been with-out a sponsor since Bob Stuchbery, former president of international operations at Hanover Insurance Group, stepped down last year.
As a result, it is the area of the LMG’s work that has made least progress, sources said. It is hoped the appointment of Jardine, chief experience officer at XL Catlin, will “re-energise” the workstream.
Last year the LMG published the results of a survey carried out in conjunction with consultan-cy Deloitte examining where the gaps in the London market’s tal-ent and skill lie.
At the time, the report was de-scribed as “vital” piece of work
that raised “critical questions” for how the market attracts and re-tains talent and competes success-fully in global markets.
It is understood the report’s con-clusions will now need to be devel-oped further, including identifying specific skills that are needed.
The survey – the first of its kind – found the market was under-investing in its next gener-ation of leaders and was failing to look outside EC3 for the most skilled individuals.
It also warned the market’s efforts to develop new and innovative products in areas such as cyber risk could be put at risk by a failure to invest in wordings skills.
Jardine said: “Talent and diver-sity is rightly in the spotlight in our market and we must capture this opportunity to not only talk about it but take action to ensure our market is inclusive and wel-coming to all.
“Why is this important? Because we believe our market needs talent from all sources possible to drive innovation, creativity and profitability across all aspects
and types of business – it’s not only the right thing to do but it’s a business imperative.”
Nicolas Aubert, chairman of the
LMG, added: “We are delighted Paul is going to sponsor this vi-tal workstream. Our market has a level of technical expertise and
experience that is hard to repli-cate anywhere else in the world.
“However, if London is to con-tinue to be the fulcrum of insur-ance innovation, and the world’s leading insurance and reinsur-ance hub, we need to ensure we have the talent to make sure the market is fit to face the future.”
The talent and diversity work-stream is one of four key areas of work being undertaken by the LMG. The others are: branding, in-novation and the Target Operating Model to modernise the market.
Insurtech threat sparks fear among insurance chief executivesInsurance chief executives are more concerned about compe-tition from technology start-ups than any other financial services sector, according to the latest PwC annual global chief executive survey, writes Scott Vincent.
The speed of technological change was cited as a threat to growth by 93% of insurance chief executives who participated in the survey, compared with 69% last year.
More than quarter said techno-logy will completely reshape com-petition in the industry during the next five years.
According to PwC, insurtech investments have increased five-fold in the three years to 2016,
with cumulative funding of $3.4bn since 2010.
The consultancy said this is ex-pected to “increase significantly” during 2017.
PwC said the growing presence of insurtech firms could also open up opportunities for insurers to improve processes, strengthen efficiency and reduce costs.
“They also can help insurers improve their analysis of the huge amounts of data at their disposal, which can lead to better customer understanding, higher win-rates and more informed underwrit-ing,” PwC said.
Jim Bichard, UK insurance leader at PwC, said: “As custom-ers demand more interactive and
transparent interactions with their insurers, partnering with start-ups to learn new ways of working en-ables the sector to tap into a wealth of different experiences.
“By engaging with these new entrants to the market and si-multaneously rethinking their in-house talent strategies, compa-nies are waking up to the fact that a smart, diverse workforce will be their secret weapon.
“Insurers can reap the benefits of being proactive in disrupting themselves as a way of combat-ing perceived external threats to growth such as regulation.”
The survey polled 95 insurance chief executives from 39 coun-tries, with PwC reporting the re-
spondents to be more concerned than leaders of any other indus-try about the combined threat to their growth prospects. Howev-er, 80% of insurance leaders said they remain confident they can grow revenues by embracing new technologies, adapting their work-force and pursuing M&A activity.
The survey found insurance chief executives believe strength-ening their digital and techno-logical capabilities is the most important area to capitalise on new growth opportunities.
Almost two-thirds said they are exploring the benefits of humans and machines working together to ensure their workforce is fit for the future.
Regulatory requirements led other concerns, with 67% very concerned about the threat of “over-regulation” in the sector.
Economic headwinds are an-other concern, alongside the related impact of social and geo-political instability and the future of the Eurozone.
According to 60% of insurance chief executives, it is becoming harder to compete in a global marketplace as a result of moves towards more protectionist na-tional policies.
More than one-third of chief executives said they are planning merger and acquisition activity in the next 12 months to drive growth and profitability.
‘Talent and diversity is rightly in the spotlight in our market and we must capture this opportunity to not only talk about it but take action to ensure our market is inclusive and welcoming to all’Paul Jardine XL Catlin
FOCUS/
Leveraging line size in a volatile energy market
Energy insurance experts discuss the opportunities for the London market and how profitable business can be found
One of the pockets of geographical opportunity in recent years has been Iran, where the lifting of US sanctions by Barack Obama has led to soaring Iranian oil exports. Similarly, a potential de-escalation of hostility between Russia and the US means sanctions might be lifted against Russia and further open up oil and gas risks in central Asia to the market. What is the outlook for energy insurers doing business with previously sanctioned jurisdictions?
Peter Burnett, director – energy, Ed“Access to new jurisdictions, such as Iran, central Asia and Russia should bring a flow of new business into the London market. However, to succeed in these emerg-ing markets insurers will need to learn to navigate certain challenges. One of the biggest challenges could be the process of transferring the premium into the London market and paying claims back into these territories, as many banks are unable to accept payment from these countries.
“Some underwriters worry the facilities have not been properly maintained, or that the quality of the underlying risks will be poor. However, research done thus far into these facilities has shown en-gineering is of a high standard and these territories have a desire to place business into London. Ed is one of the first brokers to place Iranian business into the London market, and we believe the outlook for this area is strong.”
Suki Basi, Russell Group“The lifting of sanctions on Iranian oil do present numerous opportunities for energy insurers. Iranian oil has regained its position as key supplier in the global oil network, a position partially fuelled by 25% of its exports heading to Europe. From January to August 2016, 30 million barrels of oil were shipped to Europe with 51% of those going to France.
“While Iran has many lucrative opportunities, the Russian oil market presents greater risks for in-surers. In early January, Russia cut its oil production by 100,000 barrels per day in line with agree-ment with the Opec [Organization of Petroleum Exporting Countries], breaking a previous policy of non-agreement with Opec. Worryingly, this cut in production in Russia is joined by oil statistical agency CDO TEK stopping the releasing of daily output numbers on its website.
“However, energy insurers must consider the wider picture. Both the Iranian and Russian markets are not operating in silos. Rather, they are connected in a broader geopolitical network that is determined by the Trump administration. Therefore, any energy reinsurers conducting business in these markets must be wary that the landscape is volatile and potentially exposed to rapid change.”
Jim Lye, Antares“There are two key challenges with writing business in territories where the sanctions have recently been lifted. The first is wholly logistical, ensuring money can be transferred allowing for payment of both premium and claims. This is exacerbated by the involvement of US companies in the transactions (for example CSC’s acquisition of Xchanging) and also some concerns over whether US-based reinsurers are able to respond to potential claims relating to Iran. The relaxation of sanctions related to Russia would not have such a drastic impact as the lifting of Iranian sanction, as international insurers are currently able to operate in Russia, but are subject to restrictions and increased levels of sanctions checking and reporting.
“The second challenge is related to questions on the underlying risk – has the insured been able to maintain maintenance standards without access to international goods and services? It is essential to have trusted third parties verify the status of the asset base before offering ‘all risks’ cover.”
Bruce Rodger, ArgoGlobal“Sanctions remain something of a minefield. Often, EU or US sanctions can override each other, so from our perspective we remain cautious. For us, certain territories are entirely off limits. Even then, sanc-tions are fluid and can change on a day to day basis. As a result, compliance has become increasingly important and there are a myriad of factors which need to be checked. For some, the Iranian market-place clearly represents an opportunity. However, further production in the already oversupplied oil market is not necessarily a good thing as this may impact the oil price and stifle investment.” n
How do you see the opportunities for the London market in the emerging markets of Latin America (particularly Mexico) and Asia where many countries are in the process of reforming their energy sectors? To what extent is the market likely to benefit from the expected boom in demand for insurance coverages?
Bruce Rodger, ArgoGlobal“The Mexican market has opened up; however, it still requires investment from overseas. With the current over-supply of oil, this is not happening.”
Simon Clarkson, executive partner – energy, Alesco“Latin America is a market where we continue to see significant growth opportunities for the London market. Pemex previously had a monopoly in Mexico but the government passed an energy reform bill to encourage international investment and this presents a lot of opportuni-ties for external oil companies. We’ve seen a lot of activity in the drilling contractor business and expect to see continued growth in this particular area, as well in offshore energy and onshore exploration and production.
“The insurance market in Colombia is also becoming more vibrant and the political situation is stabilising so we have a positive outlook on their energy sector. In August last year, the International Monetary Fund expected a 2.5% expansion in Colombia’s economy, placing it among the best-performing major economies in Latin America and the government is encouraging foreign investment into the energy industry.
“These developments mean there are a lot of opportunities for the energy insurance market and there is a hunger and drive for this business in the London market. We have a competitive offering and a wealth of exper-tise; London has an excellent understanding of the drivers affecting this sector so the majority of this business is still being placed in the London market.”
Suki Basi, Russell Group“South America, Brazil in particular, represents the largest deep-water opportunity. China, meanwhile, represents the largest renewable opportunity. According to Barclays Investment Bank, the world’s seven biggest oil and gas companies are set to increase their overall produc-tion levels by around 9% between 2015 and 2018.
“Oil and gas companies will raise 2017 expenditure and more than double new project developments as confidence returns that a two-year oil price slump is in the past, according to reports. The mood is more upbeat in the wake of a more than 20% rise in benchmark crude oil prices in the past two months. The fact the price of a barrel of oil has settled around the $55 mark is the result of a decision of major producers to lower output.
“The ‘Golden Triangle’ of deep water developments – the Gulf of Mexico, Brazil, and West Africa – will continue to be the main market for deep-water activity toward 2020. Of potential investments of close to $200bn, the Golden Tri-angle accounts for approximately 70%. However, there is a new region that could potentially become a new hotspot – East Africa. Large deep-water gas discoveries in Mozambique and Tanzania may bring significant deep-water in-vestments. So far, none of the potential projects have been sanctioned, however.
“South America (Brazil) will continue to be the largest market for deep-water developments over the next five years. Investments of $35bn have already been given the go-ahead and the first phases of Lula, Buzios, and the Greater Iara Cluster (all Petrobras) are moving towards first oil. The pilot phase of Libra is estimated to bring $7bn of investments from 2016 to 2020, but is still to be sanctioned. The giant field is estimated to contain between 8 billion to 12 billion barrels and is to be developed in several phases using floating production, storage and offloading units. The quest for new oil resources in this part of the world is a huge opportunity but does present challenges. Exploration in many deep-water frontier provinces is risky. Drilling success rates average only 10% to 15%. According to reports, a mere 38% of deep-water new-field wildcats drilled in 2007 to 2012 were regarded as a technical success.
“The other big challenge of deep-water projects in South America is economic. The capital-intensive nature and technological complexity of these projects can result in longer payout periods with lower investment returns. Many deep-water discoveries require a development period of five to eight years before commencing production.”
Jim Lye, Antares“In many of these jurisdictions, the assets and activity are currently insured under the policies of the national oil companies. Energy market reform has allowed independent companies access to these territories, this has led to some increased activity, especially in Mexico. However, the impact on the insurance market has been mitigated by the low oil price. As the award of licence blocks to independent operators continues, this does promise to be an area of some modest growth.”
Richard Haines, managing director – energy, Ed“Most players in the London market are attempting to expand their income globally and emerging markets provide a great opportunity to do so. Lloyd’s has had a licence to write in territories such as Latin America and Asia for some time. Risks from these territories have already come into the London market, and there are expected to be further increases in demand due to factors such as regulatory changes. More independent oil companies are drilling offshore in countries such as Mexico, which will create new business for insurers, and regulations now require all companies to purchase a certain level of insurance. The knowledge base for the industry sits with-in the London market, so we are particularly well-placed to underwrite and broke this business.” n
The outlook for the energy insurance industry is generally described as extremely chal-lenging. A recent report on the market by PwC projected rate reductions of between 6% and 7% for the market this year.The consultancy firm also noted full-year 2016 rate declines of 14% for Gulf of Mexico risks
and reductions of 11% for offshore energy risks sited elsewhere. It warned the “majority” of 2017 plans were unprofitable for the offshore property risks of energy operators.
Against this backdrop, a group of energy market experts consider the opportunities for the London market in this sector. n
Are the opportunities in the energy insurance market sufficiently differentiated across the various sectors of the market ie, offshore/upstream and downstream, that a carefully selected portfolio of risks spanning across these sectors could be written on a reasonably profitable basis despite the extremely challenging nature of the overall market?
Bruce Rodger, technical head of marine and energy, ArgoGlobal“The approach taken by each carrier depends on their individual philosophy. Our approach is to write relatively small lines across a broad spectrum,
this can help ensure that if the market turns we are on a risk rather than looking to participate as the market hardens. However, this is our philos-ophy irrespective of how the market is.”
Jim Lye, class underwriter, offshore energy, Antares“Within the energy insurance market, individual performance is greatly driven by exposure to infrequent, large losses. With an element of ‘miss factor’, there is always going to be the potential for some individual markets to write a profitable book, despite the market as a whole appearing
unsustainable. The difficulty for insurers is that a reasonable estimate of large losses has to be included in our business plans, which may mean that the planned profitability appears marginal. However, once the tail is more fully developed, there are always sure to be some who have made
a profit well in excess of their original plan.“The biggest challenge is not only writing a profitable book in any given year, but maintaining that profitability in the longer term – this becomes espe-
cially difficult in a market that is priced below the level of sustainability.”
Suki Basi, chief executive, Russell Group“Aggregation and portfolio steering is key at the moment, as knowledge of exposure at the time of underwriting enables efficient use of capital across the energy sub-classes. The Trump era can only be good news for the energy sector and insurers, as the US implements policies to bring pricing stabil-ity to the global market and create a favourable environment for pipeline and field development and hardening of the insurance rates environment for pipeline and field development and hardening of insurance rates.” n
How easy is it, particularly for bigger insurance groups, not to write to an index of the market but to write in a focused, targeted way? What are the key factors that would inhibit such an approach?
Bruce Rodger, ArgoGlobal“In a soft market, in our view, the key to success is imposing an even greater scientific approach to underwriting. Using data and working with our actuaries to identify weaker parts of the book, particularly those risks which are underper-
forming due to a high frequency of loss. We are very fortunate to have a pragmatic management who are not focused on growth for growth’s sake and instead focus on profitability.”
Jim Lye, Antares“The challenge for large groups will always come from needing to generate income to sustain their line size, if this is achieved by writing a book that is effectively an index of the market, the potential for ‘miss factor’ is substantially reduced. There is certainly scope for these insurers to write business in a profitable way, especially if they can leverage their line size to see the greatest spread of business and manage their net exposures through selective reinsurance purchase. Smaller insurers have more scope to be write a more targeted portfolio, but then suffer from a lower threshold for what would be considered a ‘large’ loss and can be subject to more volatile performance. In both cases, risk selection and portfolio management remain of utmost importance. The per-formance of the market as a whole is indicative of the long-term sustainability of pricing levels, not necessarily the performance of individuals.” n
Energy roundtable continued on pp6-7 >>
ENERGY www.insuranceday.com | Monday 13 February 20174 www.insuranceday.com | Monday 13 February 2017 5
FOCUS/ ENERGY www.insuranceday.com | Monday 13 February 20176
Energy risk management has seen a seismic shiftFluctuating commodity prices and a competitive rating environment mean insurance buyers in the energy sector are fundamentally rethinking their needs in terms of risk transfer
Gordon BrowneAIG
The energy industry has always been volatile and recent events just rein-force that point. Despite
a slight rebound in 2016, oil pric-es are still about 60% lower than their mid-2014 level.
Energy companies have had little choice other than to move boldly and quickly with a robust top-down cost focus. The mar-ket has slashed around 250,000 jobs worldwide. Operations have been halted; the US Baker Hughes Rig Count – an import-ant business barometer for the drilling industry and its suppli-ers – hit a low-point of 318 in June 2016, down from 1,575 in Decem-ber of the previous year. Invest-ments have been slashed across the sector.
An oil price of around $50 a barrel is too low to sustain a number of significant oil and gas explorations – for example into Canadian oil sands and across the Arctic.
This inevitably has a significant impact on the insurance industry, with fewer assets at risk and less money to spend on risk transfer, putting pressure on premium levels. Despite this, the insurance upstream energy market reached record capacity in 2016 with lev-els in excess of $7bn, up from around $5bn in 2012.
Increased competition has led to significant compounded rate reductions over the past three to four years.
Meanwhile, the volume of claims in 2016 is expected to exceed the level of premium, leading to a financial year loss on upstream business. It is also likely that the claims picture may be effected by lower invest-ment in maintenance of property and equipment.
Fresh demandsThis seismic shift in their own industry has caused energy com-panies to re-examine what they need and expect from their in-surance partners. Often in the past when a loss has occurred, too many exposures have been uninsured. Ideally, clients want a substantial block of capacity to spread across the entirety of their business which they can deploy as and where they need to.
Today, they are increasingly looking for holistic risk transfer solutions that address exposures across the entire spectrum of their operations. In the absence of pro-viders unwilling or unable to offer this, we have seen an increasing number of clients opt to pull out the market and pursue alterna-tive strategies, such as setting up their own captive insurers. Many insurers have suffered from tak-ing a cookie-cutter approach; they have a policy template into which they expect all the clients to fit. The challenge now for those busi-nesses is how to innovate to retain and attract new business.
Historically, insurers have been looking at the energy clients through the wrong end of the tele-scope. The starting point has usu-ally been to look at the products or lines of business the insurer has on offer and wants to sell, rather than taking a step back and focusing on the individual client’s needs and be willing to develop and deliver the right innovative solution to address them.
This presents an opportunity for the insurance industry. Those underwriting businesses that take the chance to innovate will seize
the advantage and define the agenda for those who survive in this changing business landscape and those who fall by the wayside.
Rather than look at energy companies as a disconnected se-ries of operations, insurers need to view clients’ businesses in their entirety. This means being able to offer a multinational capability, product innovation and combined first- and third-party coverage. They need to look beyond insur-ance to where they can provide value-added services such as risk management, transaction support and fronting arrange-ments. And, of course, the ability to deliver a claims service that is second to none will be more important than ever.
There are signs the industry should be braced for another wave of change. Confidence is starting to come back to the mar-ket. In the US, while on the cam-paign trail, Donald Trump made much of his energy policy, which majored on fossil fuels at the ex-pense of renewable sources.
Now in office, it would appear the new president will support the oil, gas and coal industries while alternatives such as solar and wind – which many energy companies have invested billions of dollars in recent years – will fall dramatically down the agenda. Once more, the energy industry will need to move quickly to adapt to change, and those insurance companies that want to position themselves as valuable business partners will need to do so too. n
Gordon Browne is head of the energy team at AIG
Ideally, clients want a substantial block of capacity to spread across the entirety of their business which they can deploy as and where they need to
www.insuranceday.com | Monday 13 February 2017 7
Risk and opportunity in IranSanctions against Iran have been eased but contractors in the oil and gas industry, owners of tankers and their insurers must weigh up the remaining risks when conducting business in the region
The easing of sanctions on Iran looks set to have a profound effect on its oil and gas industry. Last
year, the UN and EU rolled back many of the restrictions they pre-viously imposed and the US also lifted secondary sanctions involv-ing non-US persons.
The unfreezing of Iranian funds in the banking system and re-moval of more than 400 Iranian businessmen and politicians from the sanctions list has assisted, at least in part, in restoring the con-fidence of non-US investors in op-erations in the region.
Once they have satisfied them-selves that they do not fall foul of any remaining sanctions legisla-tion, investors can now seriously consider offering their skills and expertise to the industry.
At a time when most players in the offshore industry are seri-ously hurting, the re-emergence of the Iranian offshore industry comes at an opportune time. Ac-
cording to a recent report by an internationally recognised ener-gy intelligence group, it has been estimated Iran could award ap-proximately $50bn to the offshore sector between 2016 and 2020. The majority of this investment is expected to be towards engineer-ing, procurement, construction and installation contracts.
With the increase in the num-ber of active platforms along with ageing facilities that are un-derstood to have suffered from lack of investment since the main players pulled out of the country on the imposition of the sanc-tions, there is great potential for a rise in maintenance and opera-tions purchases.
This potential appears borne out by reported projects such as the order of five jack-up rigs from a Russian shipyard and Total hav-ing signed an “agreement in prin-
ciple” to help develop the South Pars field alongside the Chinese state oil company CNPC, which is said to be worth about $2bn.
Furthermore, there has been co-operation with a South Kore-an company over development of the Balal field and discussions taking place for a floating lique-fied natural gas facility to be used for gas liquefaction in the Per-sian Gulf.
More platforms are expected at the $4bn Eni project for South Pars phase 11, as well as at the Farzad B oilfield, discovered by an Indian consortium.
Looking to the futureWhile a speedy return to pre- sanctions supply levels might cause unwanted stock-building, the expectation is that Iran’s grad-ually increasing production capa-bilities will balance out reduced
output from other oil-producing nations looking to cut costs.
The primary short-term aim for the Iranian government is to increase its current production of between 3.5 to 3.8 million barrels per day to four million barrels per day. It is also reported Iran plans to increase its natural gas output to more than 160 billion cubic me-tres this year.
These developments are very welcome and must be seen as a shining bright light in an other-wise gloomy period in the off-shore industry. To what extent development in this region will contribute to the wider offshore sector remains to be seen but the not-unreasonable assumption is that unlocking one of the larg-est energy reserves in the world would result in numerous em-ployment opportunities.
While this resurgence is fa-vourable news for the industry, it is important every company looking to conduct business with an Iranian entity bears in mind some key sanctions issues that might affect them.
US primary sanctions remain in place and continue to apply to US persons, US dollar trans-actions and US re/insurers. For re/
insurers, problems may occur if the contracting party is domiciled in the US, and banking difficul-ties may affect any funds mov-ing through the US banking system. In addition, restrictions are also imposed by Saudi Arabia and Bahrain.
There is always the potential the so-called “snap-back” provi-sions could be re-imposed should Iran fail to maintain its commit-ments to the joint comprehensive plan of action (JCPOA). Lastly, the US president has been high-ly critical of the JCPOA, and it is unknown whether he will seek to reverse the relaxation of US sanc-tions once in office
Accordingly, we would advise our assureds to carefully consid-er the remaining risks involved when conducting business in the region and to ensure they are sat-isfied they are not in breach of the remaining sanctions legislation before making any commercial commitments. n
Vishal Khosla is senior claims executive at Skuld London and Lewis McDonald is assistant vice-president and interim head of claims and contracts at Skuld Offshore
Vishal Khosla and Lewis McDonaldSkuld
Iranian energy sector facts• 70% of the world’s total oil reservoirs• 40% of the world’s gas resources• 9.3% of the world’s total gas reserves• Largest hydrocarbon reservoirs in the world
To what extent are the increase in expertise and capacity in the emerging regional underwriting hubs in the Middle East and Asia/Singapore taking energy business, particularly offshore energy business, away from the London market? And to what extent does deployment of upstream capacity in these hubs add to overall softening process in the market?
Jonathan Lyne, chairman – energy, Alesco“We haven’t seen any meaningful withdrawals of market ca-pacities (across upstream, downstream and energy construc-tion) in the regional market in Asia, or on a global basis. There
has been recent Asian investment into the up-stream insurance markets and this has been
conducted with a view to taking a more dominant position in this sector.
“We’ve also noted that the Asian regional markets are sometimes not as aggressive as some of the London and Middle East mar-
kets, from whom even more competitive prices have been offered to similar risks.
“The regional markets tend to place a greater emphasis on their better understanding, long-term relationship and close interactions with their clients. We are increasingly see-ing that downstream energy capacity in these emerging markets is mobile. Upstream business is usually placed 100% locally due to there being a lot of capacity and excellent local expertise, and the indigenous capacity is increasing year on year. Some business is placed locally – completely financed and backed locally – but as the market weakens a lot of business, especially from Dubai, is referred into Lloyd’s.”
Jim Lye, Antares“To some extent the success of a local market depends on having a combination of knowledgeable local wholesale brokers, local leadership capability and local follow capacity. The ability of a local market to be able to undercut the overall global insurance market very much depends on the regional performance.
“The Middle East and North Africa region, for example, has benefited from relatively benign upstream loss activity, and mar-kets writing business in the region can therefore offer cheaper rates than their counterparts offering global coverage. This does not necessarily contribute to the overall softening of the market, but can produce local effects.
“Regional hubs are very good at getting closer to clients and ce-dants, but unless they are seen as part of a global offering, then they could be subject to more volatile results.”
Bruce Rodger, ArgoGlobal“The insurance world is now global. The mindset that says London is and will always be the hub is outdated. People of my generation are the hardest to convince of this! The expertise and capacity is now international, if you sit at the box and wait you are actually going to start losing business.
“We must adapt. Open market business is now just part of our book. We have overseas offices writing business as part of the team and we are collaborating with them constantly. These markets are also evolving rapidly and becoming increasingly sophisticated.”n
Energy roundtable continued from pp4-5
Singapore: one of the emerging hubs for
energy business
Aon Benfield returns to growth in 2016Reinsurance broker books organic growth of 1%, while Aon’s retail business grows 3%
Michael FaulknerEditor
Aon’s reinsurance business returned to growth in 2016, as the global broker beat an
alysts’ earnings forecasts for the fourth quarter.
The USlisted group booked total revenues of $3.3bn for the last quarter of the year, representing 3% organic growth.
Aon Benfield, the group’s reinsurance arm, reported organic growth of 2%, booking revenues of $329m on the back of new treaty business and growth in facultative placements, although this was partially offset by a decline in
capital markets transactions and advisory business.
Aon chief executive, Greg Case, said the unit had “returned to growth in 2016” with organic revenue growth of 1% for the fullyear, compared to a 1% decline in 2015.
Tough reinsurance market conditions have weighed heavily on Aon Benfield and its peers in recent years, with cedants buying less reinsurance and commissions declining.
Earlier this month, Guy Carpenter reported underlying growth of 2% in 2016.
Meanwhile, Aon’s retail brokerage business achieved 3% organic growth, booking fourthquarter revenues of $1.72bn.
The company said it had strong growth in affinity business and in Latin America, as well as a “con
tinued record of new business generation” in US retail. International organic revenue increased 2%, driven by “growth across every major region”.
In total, Aon’s Risk Solutions division, which combines its reinsurance and retail units, reported 3% organic growth to $2.05bn for the last three months of 2016.
Adjusted fourthquarter operating income for the Risk Solutions division was $566m, representing a 9% increase on the same period last year. The adjusted operating margin increased to 27.6%.
Aon reported net income per share, adjusted for certain items, of $2.56 – ahead of Wall Street consensus forecasts.
“We ended 2016 in a strong position, driving positive performance across each of our key metrics for both the fourth quarter and the full year, highlighted by growth across every major business and record operating margin in Risk Solutions,” Case said.
The group also confirmed it is to sell its benefits administration and HR outsourcing platform to Blackstone for $4.8bn.
The company said the sale, which is expected to close in the second quarter, “accelerates the pursuit of inorganic growth opportunities that address emerging client needs”.
Aon recently bought New York based risk management firm Stroz Friedberg to expand its range of cyber risk services.
Willis Re estimates industry cat losses of $39.5bn in 2016Reinsurance broker Willis Re called on the industry to work to close the protection gap after another year in which economic losses from natural catastrophes significantly outstripped those covered by insurance, writes Scott Vincent.
A report by the broker found major natural catastrophes caused insured losses of $39.5bn in 2016, the highest since 2012 when the industry recorded losses of $60bn.
The Kumamoto earthquake in Japan in April last year was the costliest event, causing insured losses of more than $4.8bn.
Other significant events included Canada’s Fort McMurrary wildfire ($3.5bn), Hurricane Matthew, which the broker estimates to have caused $2.3bn of damage in the US, and windstorms Elvira and Friederike in Europe, which cost insurers $2.48bn.
John Alarcon, executive director, catastrophe analytics at Willis Re International, said: “Economic
losses continue to be higher than insured losses and substantially so in some regions.
“Clearly, the insurance industry has a significant role to
play in helping economic recovery by supporting resilient societies and closing the protection gap between insured and total economic loss when nat
Miller expands property facultative team London wholesale broker Miller has expanded its facultative property capabilities with the appointment of senior broker and producer Damian Richards, writes Michael Faulkner.
Most recently, Richards was senior vicepresident at Guy Carpenter, focusing on the production and placement of facultative reinsurance for UK cedants.
At Miller, he will develop tailored facultative reinsurance solutions for the firm’s clients, with a focus on UK cedants.
“His expertise adds additional strength and depth to our team and further enhances our ability to provide a marketleading service to our growing client base,” Neil Higgins, head of facultative reinsurance at Miller in London, said.
‘We ended 2016 in a strong position, driving positive performance across each of our key metrics for both the fourth quarter and the full year, highlighted by growth across every major business and record operating margin in Risk Solutions’Greg CaseAon
ural catastrophes occur,” he said.Last month Munich Re estimat
ed catastrophe losses of $50m for the year, with economic losses totalling $170bn.
Kumamoto earthquake: the costliest event last year
© Shizuo Kambayashi/AP