Offshore Energy Production


While bluewater hull product line has failed to deliver profits for more than a decade, underwriters face a host of challenges as they seek to provide coverage for the current generation of floating production, storage and offloading (FPSO) units and the next generation of floating liquefied natural gas (FLNG) terminals.


“The common thinking has been that FPSOs are offshore energy business and so the FPSOs should be rated and understood and priced in the offshore market. Some of that has leaked into the hull market, where the exposures aren’t adequately understood.” Robert Huffert, Munich Re America


For 15 years straight, the bluewater hull product line has been unprofitable, the result of overcapacity and underpricing for fleets that average $25 million in value per vessel. At the same time, some hull underwriters are reaching beyond that realm to cover $3 billion to $4 billion FPSOs, and they don’t always have an adequate understanding of the exposure. Unlike typical fleet vessels, they contain a great deal of sophisticated processing equipment and they can’t easily move out of the way of trouble. The business interruption losses in many cases may be far more costly than the physical damage. Looking ahead, FLNG terminals will test underwriters’ mettle and creativity in terms of understanding the exposure, designing and pricing new products, pricing and spreading risk throughout the market. At 450 meters by 70 meters, FLNG terminals, which compress and offload gas at one site to avoid onshore pipelines, will have the largest footprint of any current vessel. The first one will probably start building in 2016.


Copyright © 2011 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


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