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“State of the
Marine & Energy Market”
“A Global Insurer’s
Perspective”
Don Harrell
SVP, LIU US
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Market Trends
• Over supply of capital
• Overcapacity and high competition
• Lack of investment income
• Flat economics & aging infrastructure
in the developed world
• Improving infrastructure & increasing
values in the developing world
• Increasingly concentrated distribution
channel
• New technology
• Musical chairs of talent
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Emerging Issues
• High exposures & accumulation risk
– Chile Earthquake (2010), Thailand Flood(2011), Japan
Earthquake / Tsunami (2011), Costa Concordia (2012),
Superstorm Sandy (2012), US Floods & Droughts
• Increasing claims trends – frequency and severity
• Increasing:
– Cost of litigation (e.g. GA/Salvage awards)
– Environmental regulation
– Sanction compliance (e.g. reputational risk)
• Changing trading patterns (e.g. Arctic
shipping lanes, Northern Sea routes,
Panama Canal expansion, etc.)
• Crew competence / Bridge management /
Vessel maintenance / Port congestion
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Challenging Macro Environment
Depressed Economic Conditions
• Global trade is flat
• Lower maintenance budgets due to
reduced earnings
• Ships under-utilized, go for repairs >
increase in moral hazard/layups
• Lower freight rates > reduced asset values
> increased CTLs
• Increasing trend to claim in
recessionary environment
• Minimal investment return, higher
credit risk and weakening currencies
Market Cycle Defined as
• Less elastic, flatter and significantly longer
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Offshore Energy Trends/Issues
5
ISSUES
TRENDS
Politicalization of events
Government intervention
Coping with market volatility
Cycle Management
Increasing Fracking activity
Increasing exposures
Deepwater drilling resumes in GOM
Values continue to increase
LNG mega-projects
Stretching available capacity
Aging assets
Increasing decommissioning risk
More wind capacity
Less take up in wind cover
More overall capacity
Larger wind retentions by Assureds
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Hull Underwriting Trends/Issues
6
ISSUES
TRENDS
Overcapacity in the market
Pressure on rating and T&Cs
Worsening loss ratios
Hull technically at loss for 17
consecutive years!
Reducing values
Average age decreasing
Aging assets
Increased claims costs
Exposure to CAT Events
Minimal impact of Superstorm Sandy
Growing pressure to make
commercial settlements
Increase in X-Gratia payments
First LNG-powered vessel delivered
Value is 3.5 times the normal tanker
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Marine Liability Trends/Issues:
7
ISSUES
TRENDS
Overcapacity / new capacity
Increase in competition
Shift in governmental & regulatory
response
Increase in overall claims costs
Media, environmental & political
influences on claims process
Increase in removal of wreck claims
(e.g. Costa Concordia)
More litigious environment WW
Increasing indemnity payments
Retentions very low relative to
events
Primary limits & Deductibles remain
low
First excess layers = working layers
Improvement in underwriting
discipline
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Cargo Underwriting Trends/Issues:
8
ISSUES
TRENDS
Large losses erode results
Superstorm Sandy, MOL Comfort
Increase vessel / port accumulation
First Triple E Class -18,000 TEUs
Increase in NAT CAT/Accumulation
Increase in Stock Through-Put
Increase in government intervention
Increase in Sanctions
Increase in Cargo theft losses
Increase in corruption & economic
stability worldwide
Overcapacity / intense competition
Increase New capital in the market
Impact from Technology
Improves consistency of data across
the supply chain
Global Crisis’ - Syria, Egypt and
Suez Canal
Increase in exposure & losses
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Risk Managers’ Perspective on
Marine Insurance Market!
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Risk Managers’ Key Issues
• The protracted scarcity of property insurance capacity for
windstorm risks
• The lack of cost-effective contingent business interruption
insurance to transfer supply chain exposures
• Problems over insurance coverage gaps and
pricing methodologies
• Rising anxiety over
reputational risk
• A professed need for more
expansive, insurer-provided
loss engineering services
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E&P Risk Managers’ Trends & Solutions
Risk Managers to Assume More Risk Via
• Higher self-insured retentions or the use of captives
• Sell, abandon or decommission non-productive assets to reduce
aggregations at risk of loss
• Be more strategic with budgeted resources; and/or
• Transfer exposures to the capital markets
But the Capital Markets Solution Is Problematic
These risk solutions have too much of a miss factor
to be an effective risk solution for companies with a
large diverse reserve portfolio
- One Risk Manager
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Risk Managers’ Supply Chain Concerns
Vulnerability of Companies’ Global Supply Chains to
• Extreme weather events
• Other natural or man-made disasters
• Sole source supplier situation
• Suppliers’ suppliers defaulting on contracts
We are beginning analysis of our supply chain exposures
from a risk bearing standpoint. We’re also contractually
laying off risks to other providers, and have increased our
financial limits substantially in some lines (of insurance) by
getting rid of insurance coverage in other lines, being more
strategic with our capital resources. We’re taking much
more of a `targeted’ approach to risk transfer.
- Mr. Hayles
Hilcorp Energy
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Risk Managers’ Quotes
I’d really like to see underwriters think `out of the box’
and create a more effective long-term warranty
insurance product.”
- Doug Downing
Canal Barge
We would find it extremely valuable to have the
insurance industry learn more about what these
government agencies do and are planning to do.
This could even lead to a creative insurance program
or some layer of coverage to help us defray the
related (compliance) costs.
- Ms. Pichè from Black Elk
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Risk Managers’ Quotes
To manage the cycle, we do three things—have
healthy self-insured retentions, seek good results and
seek a long-term relationship with our insurers, broker,
vendors and even the outside firms that provide
legal services.
- Spencer Murphy,
Canal Barge
You pay a bit for this, but the upside is that it helps
you avoid significant volatility. … The improved
visibility is worth it from a budgeting and expense
allocation standpoint.
- Michael Alvarez
First Wind Energy
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Risk Managers Quotes
“You need to put a face on the person you’re dealing
with. Price and capacity are important, but the
responsiveness to claims is more important, and that
is where a personal relationship comes into play.
- Michael Alvarez
First Wind Energy
To me, our underwriters are an extension of our risk
management team. They’re here to help us improve
our business, to help this company grow and prosper.
They do this by assisting us to reduce losses and,
where feasible, to contain them.
- Matt Wallace
Huntsman Corporation
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“Eyeing an Uncertain Future”
• Current and intruding concerns
• Supply chain disengagement
• Disaster planning and recovery
• Sleepless nights
• Closer collaborations
• Coverage considerations
• The value of long-term relationships
• Added Value Services - Risk
engineering