Aon Review Finds Offshore Energy Renewals ‘a Mixed Bag’

A report from Aon’s London office concludes that “2009 Insurance premiums are predicted to remain flat for offshore energy business for October’s renewals.” The premiums are dependent on location, loss history and the limits sought, according to Aon. “This is a very different position from the beginning of 2009 when rates were expected to rise between 15 percent and 20 percent,” the bulletin noted.

For companies looking to insure large and/or complex risks, insurers are still trying to extract rate rises, as they seek to claw back profits from a sector that has been battered by catastrophic losses such as Hurricanes Katrina and Ike. However, many insurers are looking to retain market share so there are still good deals to be made.

However, Aon notes that “large rate rises in the energy sector for medium-sized risks have failed to materialize so far in 2009. It gave the following reasons:
— Although there have been a steady string of losses so far this year, none have been considered ‘market-changing’, so losses have not eroded the returns insurers have been able to make on the risks they have underwritten.
— Capacity in the insurance market has remained relatively stable despite fears many insurers would withdraw from the market.
— Confidence in the economy has begun to increase, and the ‘financial Armageddon’ feared in late 2008 and early 2009 did not materialize.
— As more energy risks are being underwritten locally, London based insurers increasingly need to offer competitive rates to secure new business.

William Lynch, Head of Energy – UK at Aon, commented: “We continue to see strong resistance from buyers to attempts to increase rates in the UK market, at least for mid-sized risks. Insurers, though, are under pressure to maintain and increase profitability in this sector, so whilst capacity remains relatively stable it is becoming harder to place complex and large risks, particularly if business interruption is a factor. In other words, highly complex or catastrophe exposed risks are paying the price for a poor claims history fuelled by hurricane losses.

“Aon maintains that although rate rises will be sought by insurers, they will be nothing on the scale predicted at the beginning of this year, or anything like the ones seen after Hurricanes Katrina and Ike.

“However, the energy insurance market is beholden to the way the wind blows. One large storm in just the wrong place or time could change the market completely. In the meantime there is definitely an opportunity for businesses to secure very competitive rates in Q3 and Q4 so long as they have strong risk management practices in place.”

Source: Aon – www.aon.com

Topics Carriers Aon