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Downstream Energy                                                                                                                                                                                                     that produces a withdrawal of capacity as well as a
                                                                                                                                                                                                                      significant increase in loss activity that will impact gross
The downstream energy market continued to soften                                                                                                                                                                      underwriting performance and reinsurance costs.
in 2016. Rating reductions continued, with some large
accounts with significant premium pull being awarded                                                                                                                                                                  Insurers are left with the decision to choose between
particularly significant reductions. More modest reductions                                                                                                                                                           sticking with quality accounts and shrink accounts where
of up to 15% were more common on clean businesses with                                                                                                                                                                profitability is compromised, or aggressively fight for
superior risk profiles. Despite there being consolidation                                                                                                                                                             market share and rely on deeper pockets. Buyers are free
and restructuring of businesses, there has been no                                                                                                                                                                    to choose to stay with trusted insurer partners or to move
significant reduction in capacity, resulting in further                                                                                                                                                               to alternative markets.
competition for market share between insurers. However,
the dwindling premium income pools may eventually leave                                                                                                                                                               All things being equal, the outlook for 2017 is further
some insurers unable to afford as much reinsurance                                                                                                                                                                    reductions, unless there is a severe market changing
protection as they have sought in the recent past.                                                                                                                                                                    event. Supply and demand laws will continue to dominate
                                                                                                                                                                                                                      the market cycle and businesses must endeavour to
There has been some movement of talent within the
industry in the Asian market. The transfer of the Head of                                                                                                                                                              Asia, where most global
Global Energy at HDI to Singapore was a statement of
intent in the onshore energy space and also enhances                                                                                                                                                                  USD4 bmarkets are represented,
expertise in Asia Pacific. Qatar Re is a new entrant and is
actively looking at energy onshore risks in Asia. Trust Re                                                                                                                                                             has significant capacity of
is also looking to enhance their energy offering in Kuala
Lumpur by the end of 2016. Berkshire Hathaway, which                                                                                                                                                                  differentiate and innovate in order to prevent further price
began operations in 2015, is increasingly active in the                                                                                                                                                               reductions. As 2016 is likely to yield overall underwriting
onshore energy space and has consolidated its position by                                                                                                                                                             profits for this class, competition for premium income and
taking advantage of growth opportunities.                                                                                                                                                                             market share should continue into 2017.

At an industry level sub USD 50/barrel oil prices have                                                                                                                                                                “Insurers are left with the decision
resulted in reduced drilling and construction activity, as                                                                                                                                                            to choose between sticking with
well as added pressure on oil companys’ and contractors’                                                                                                                                                              quality accounts and shrink accounts
costs. The consequence of this is reduced insurance                                                                                                                                                                   where profitability is compromised, or
spend into the market and possible safety compromises..                                                                                                                                                               aggressively fight for market share and
One can foresee that premium rates will continue to fall                                                                                                                                                              rely on deeper pockets”
until the overall dynamics change – this will likely require a
combination of a change in global investment opportunities

                    WELD Downstream Energy losses 2000-2015, adjusted for inflation (excess of USD 1m)  12
                                             versus estimated global Downstream premium income

12
USS Billion
                                                                                                                                                                                                         USS Billion
10 10

88

66

44

22

00
       00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

     Source: Willis Towers Watson/ Willis Towers Watson Energy Database

Downstream Losses     Estimated
excess USD 1 million  Worldwide Premium

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