Premiums Flat For Off-Shore Energy Sector

NU Online News Service, Sept. 2, 11:40 a.m. EDT

Offshore energy business insurance premiums are expected to remain flat for October renewals, depending on location, loss history and limit sought, according to Chicago-based insurance broker Aon.

The broker said that this is a very different position from the beginning of 2009, when rates were expected to rise between 15 and 20 percent.

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

Aon pointed out that large rate increases in the energy sector for medium-sized risks have failed to materialize so far in 2009 because:

o Although there has 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.

o Capacity in the insurance market has remained relatively stable despite fears many insurers would withdraw from the market.

o Confidence in the economy has begun to increase, and the financial Armageddon feared in late 2008 and early 2009 did not materialize.

o 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, United Kingdom at Aon, said in a statement, "We continue to see strong resistance from buyers to attempts to increase rates in the [U.K.] market, at least for midsize risks."

He said that insurers, however, 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 fueled by hurricane losses."

He added that while insurers will seek rate increases, those increases will not be on the scale predicted earlier, or seen after Hurricanes Katrina and Ike. However, a large storm could change this dynamic.

"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," Mr. Lynch added.