Threats on Horizon for Booming Latin American Energy Industry: Willis
Foz Do Iguacu, Brazil, October 9, 2012 - The booming Latin American energy
industry is not insulated from the threat of a Eurozone collapse or hostilities in the
Middle East, warned Willis, the global insurance broker (WSH: NYSE), today.
Speaking to a gathering of energy companies in Foz Do Iguacu, Brazil, Martin
Sullivan, Willis Deputy Chairman cautioned that while global demand for energy
resources is buoyant and Latin American economies largely resilient, there are
several clouds on the economic horizon including political tension, rising oil prices,
natural catastrophes, supply chain disruption, and cyber risk.
“We now all live, to a much greater extent, in one global village and these clouds
have the potential to pose many additional risks to the energy industry in Latin
America,” Sullivan told the Willis Latin American Energy Conference.
Highlighting the knock-on impact the Eurozone crisis could have on the Latin
American energy sector, which relies on European insurers for over 60% of its
insurance capacity, Sullivan referred to recent estimates from Swiss Re that a
restructuring resulting in a 50 per cent haircut of Greek, Irish, Portuguese, Spanish
and Italian sovereign debt could wipe 24.3 per cent from European insurers’ capital
“There is certainly the potential for a disconnect between supply and demand for
energy business in the future and you don’t need me to tell you that without
adequate insurance, these projects simply won’t be able to go ahead,” he warned.
He also cautioned that a serious outbreak of hostilities in the Middle East would have
a devastating impact on the global economy, particularly the energy industry. A
conflict in the Middle East and the closure of the Strait of Hormuz would disrupt 20%
of the world’s oil production, leading to supply chain failures and an oil spike of up to
$300 a barrel, estimated Sullivan.
“But perhaps the worst effects of another war in the Middle East would be a
breakdown of the ties of interdependency between the nations of the world brought
together by globalisation – just at the time when regions such as Latin America need
to cultivate markets in the developed world for their products,” he said.
Looking back to the oil price spike in 2007-2008, Sullivan observed that the pressure
to meet global demand led to a dramatic increase in new projects and new risks as
the industry moved into more hostile geophysical environments.
“All these developments necessitated the deployment of new, untried and untested
technologies at a time when the pressure to maximise production levels was greater
than ever. As many of you here will know, the correlation between the deployment of
new technology and increased losses and insurance claims is well documented,”
Sullivan also highlighted the vulnerability of the industry to cyber threats, saying: “The
energy and insurance industries are now utterly dependent on our IT systems. The
problem, however, is that our IT systems are in turn utterly dependent on other firms
that specialize in data storage and processing, communications, online transactions,
and so on. Each represents a node of vulnerability.”
“There is also the risk of cyber-attack, motivated by political, social, economic, or
other aims – and as I said earlier, this risk would be seriously exacerbated by any
escalation of the tension in the Middle East,” Sullivan said.
He then called on the energy and insurance industries to work together to understand
and prepare for threats as the search for energy moves into riskier, more remote
“The energy industry is developing fresh technology – moving into deeper water,
exploring more remote regions, deploying newer, untried and tested technology,” he
“We have to ask ourselves some key questions: Do we yet have the data to identify,
quantify and assess the risk properly? Will there be sufficient capacity and/or appetite
for an appropriate risk transfer solution to be developed? And can such a solution be
offered at a premium that an energy company is willing to pay?”
Willis Group Holdings plc is a leading global insurance broker. Through its
subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk
management, financial and human resource consulting and actuarial services to
corporations, public entities and institutions around the world. Willis has more than
400 offices in nearly 120 countries, with a global team of approximately 17,000
employees serving clients in virtually every part of the world. Additional information
on Willis may be found at www.willis.com.
Notes to Editors:
1. *Swiss Re Global Insurance Review of 2011.