September 2012 Bermuda Re/insurance


37


cat events”, said Rivers, as Bolt sought to navigate around the danger posed by a future sizable loss. This raised some concerns that capacity would be constrained, but as Berg outlined, the move was a sensible one from Bolt. “It is very important to monitor the aggregates of offshore energy exposures better,” said Berg. “Underwriters have to maintain full transparency regarding potential clash scenarios on property losses and liability losses, as well as connected coverages. For offshore energy projects in particular, we are witnessing an enormous aggregation of values.”


Berg cited the example of rescue operations off the Elgin platform in the North Sea early in 2012 following a gas leak, which led to supporting mobile platforms being towed into place. He said that this had led to aggregate insured values in excess of $7.5 billion being exposed to the potential threat of a gas explosion—a figure that is multiples of the level of premium in the sector. Such incidents suggest that Bolt was right to be concerned about potentially dangerous aggregation on the line.


The other element of Bolt’s initiative was a desire to unpackage those insurance products extended to the offshore energy sector. “Lloyd’s office of performance management stressed the importance of a clear division of coverage into physical damage per risk, natural catastrophe and liability coverage,” said Berg. “This is fundamental to achieving transparency and a precondition for calculating an adequate price for each product, with individual coverage underwritten and priced on a stand-alone basis.” The necessity of such an approach was stated loud and clear by Bolt, he said, with the initiative made clear to both Lloyd’s and the international energy markets.


Vogler added that Bolt’s initiative had been a “good thing for the sector, helping to focus industry attention and ensuring the quality of underwriting”. He said that the main focus of Bolt’s concern had been “how energy liability is priced and underwritten and how limits were being dealt with by the sector”. Vogler indicated that on the liability side there is a real danger of accumulated losses, adding that Bolt’s edicts on the matter had helped the Lloyd’s market keep a tight rein on marine energy underwriters and had ensured they “don’t overexpose themselves, knowingly or unknowingly”.


It will be interesting to see how rates develop on line for marine energy. Despite calls for price rises, it seems likely that only a major event will turn the market, suggesting another flat renewals season ahead for reinsurers. The question will be whether a future major incident will find the industry pricing somewhat short of where it should be. Only time and significant losses will tell.


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