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INFORMING YOU WITH MARKETS AND INDUSTRY SPECIFIC INSIGHTS AND KNOWLEDGE

ENERGY REVIEW

31 January 2018

As we move into the New Year there are a handful of global issues which will most likely unravel in 2018. The threat and horrors of ISIS in the Middle East fortunately are spluttering and the impact on safety and security in the region will dwindle significantly. Likewise, the war in Syria will not continue to destabilise surrounding countries, thereby prompting Russia, Iran and Turkey to seek new areas to meddle in. South Africa and Zimbabwe should settle down following the replacement of the head of state in both countries. Once the Winter Olympics are over, North Korea will most probably give up being “nice” again to the West and revert to making petulant noises which most people are learning to ignore. In Iran, the situation may get slightly worse for a while as the elite in power work out how to give protesters an inch but prevent them from taking a mile.

That leaves Venezuela, because of its oil, potentially the richest country in Latin America. However if Venezuela has huge amounts of oil, it cannot sell it because the price is too low. In fact, one could say that the price of oil dictates the direction in which politicians set their sails. Scotland’s talk of independence has become a secondary topic of discussion, seeing as projected income from oil and gas in the North Sea could not even cover the sundry expenses of a self-supporting state. A few years ago, one would have said “perish the thought” that local citizens in Saudi Arabia would have to pay taxes but the Crown Prince has changed that as he seeks to wean the country off its sole dependence on fossil fuels. In Cyprus the Greeks and Turks who have been glowering at each other across the island’s divide for years have shown signs that sharing the benefits of oil off the coast is better than preventing each other from accessing it.

During the past few weeks the price of oil has been moving slowly upwards. One possible consequence is that countries and corporations are talking more seriously than ever about renewables: Saudi Arabia has plenty of sunshine to harness and Shell is investing a lot in solar energy. One expert is quoted as saying, “as the cost of renewable technology continues to drop, technological innovation persists and green policy momentum continues, oil and gas companies will increasingly look to allocate capital towards gaining market share in renewable energy”. An indication of what investors would still like to see, however, is a recent analyst’s prediction that oil prices could hit US$80/bbl this year, but another forecaster has sounded a warning – the world’s biggest crude consuming region, Asia, is showing signs of an impending downward correction. The next couple of months will be interesting.

In European politics, two women are struggling to keep events in their own countries under control. Mrs Merkel in Germany seems to have reached the point where she will have to move forward with another “Great Coalition” with the Social Democrats. In the UK, Mrs May’s leadership is facing new challenges almost on a daily basis. Brexit negotiations continue with three main issues emerging: how much the UK owes the EU, what happens to the Northern Ireland border, and what happens to UK citizens living in the EU and EU citizens living in the UK. According to City of London officials, British banking, insurance and asset management job losses to the European Union due to Brexit might not be as heavy as initially feared, but there is still another year before this subject rises anywhere near the top of the EU/UK list of priorities. There are, alas, ominous rumblings in some of the 27 countries remaining in the EU: if they are expected to pay the shortfall in EU finances once the UK drops out, they may also seek the sort of deal the UK negotiators believe possible – retaining the most important privileges of club membership without paying the annual subscription.

As readers will have seen in our Insurance News sections, the industry is not waiting for the negotiators to resolve many of the future Brexit frustrations: they are making their own preparations. The past eight or nine months have seen many insurance organisations who have been using the UK as a base now opening up in the EU. Networking has always been a forté of insurance professionals and who is going to get in the way of an entrepreneurial broker crossing the Channel to do business, passporting rights or not?

Pioneer and Travelers each enjoy several mentions in the Insurance and People sections and as always, there are moves within the market which are interesting to follow.

There have been some large incidents reported in our Energy Casualty section and, at the time of writing, with the large tanker blaze in the East China Sea, Iranian oil exports have not got off to a good start.

We hope this incident will not repeat itself and wish our readers and clients a happy, healthy and productive 2018.


Energy Casualties

 

Iranian oil tanker fire in East China Sea

Iranian oil tanker Sanchi (IMO 9356608) caught fire in the East China Sea on the 6th January after colliding with Hong Kong-flagged Chinese cargo vessel CF Crystal (IMO 9497050) about 160 nautical miles off the coast of Shanghai, leaving the tanker’s 32 crew – 30 Iranian nationals and two Bangladeshis – missing.

The 21 Chinese nationals who made up the crew of 2011-built, 41,073gt CF Crystal were all rescued and the vessel itself suffered “non-critical” damage, according to the Chinese transport ministry. It had been carrying 64,000 tonnes of grain from the US to the Chinese province of Guangdong, the government said.

2008-built, Panama-registered Sanchi has 85,462gt and is owned by Bright Shipping Ltd. of Tehran, Iran. It is managed by Iran’s National Iranian Tanker Company (NITC). She was en route from Assaluyeh in Iran, which she left on the 16th December, for Daesan in South Korea, where she was due to arrive on the 7th January.

The Sanchi was carrying about one million barrels (136,000 tonnes) of condensate, an ultra-light crude. Iranian oil ministry spokesman Kasra Nouri told Iranian state television that the Sanchi had “valid foreign insurance”. It had been leased by Hanwha Total Petrochemical Company Ltd.

Four rescue ships and three cleaning boats arrived by 09:00 a.m. local time on the 7th January. South Korea sent a ship and a helicopter to assist. Search-and-rescue efforts were hampered by spillages, fierce fires and poisonous gases which have engulfed the tanker and surrounding waters and the risk of explosion. As of the 11th January, several explosions have been recorded, forcing back rescuers, and there is now an added risk that the tanker will break up.

As a comparison, the Exxon Valdez was carrying 1.26 million barrels of crude oil when it spilled 260,000 barrels into Prince William Sound off Alaska in 1989, badly damaging local ecology and the area’s fishing-based economy.

But the size of the oil slick from the Sanchi – and the scale of the environmental toll – may be smaller. Unlike the thick crude which gushed out of the Valdez, much of the light, gassy condensate from the Sanchi may have evaporated or burned immediately, an official said. A Hanwha Total spokesperson said there is “little possibility” that the condensate would leave traces in the ocean after it burned. He added the losses would be covered by an insurance company. The Sanchi’s cargo was estimated to be worth more than US$60 million.

The Sanchi’s own fuel that leaked during the collision will be more difficult to clean, officials said.

Condensate, a light oil produced along with natural gas, is mainly produced in Iran at the South Pars offshore field.

The Sanchi is entered with Steamship Underwriting (SMUAB), Eastern Syndicate, on behalf of Bright Shipping Ltd.

CF Crystal, owned by Changong Group HK Ltd., care of manager Shanghai CP International Ship Management of Shanghai, China, is entered with Skuld on behalf of Changfeng Shipping Holdings Limited.

As of the 10th January, officials had said the oil spill is less of a concern than the Sanchi sinking.

“There was no precedent for this accident,” Zhi Guanglu, Head of the transport ministry’s Emergency Response Department told reporters. “We are still facing enormous difficulties and many challenges.”

Clean-up efforts continue, with ships and planes monitoring oil leaking from the sunken vessel. China’s State Oceanic Administration said it detected an oil slick in the area that appeared to contain heavy bunker oil from the Sanchi’s fuel tanks that could pose a serious threat to the marine environment.

Zhi said attempts to rescue crew members were hampered by a multitude of factors, beginning with the remote location of the collision.

That necessitated a 20-hour round-trip to refuel and refill the firefighting boat’s tanks with fire retardant foam, Zhi said. The massive fire aboard the Sanchi required constant dousing with foam that far exceeded the capacity of the ship’s storage tanks, he said.

The fire and toxic fumes released also forced rescue vessels to keep their distance and it was only after several days when the fire was beginning to die down that rescuers were able to board the ship using a crane and remove two bodies. Even then, the heat of the fire prevented them from entering the crew quarters.

High winds and waves up to 4 metres (13 feet) high further increased the difficulty, Zhi said.

“In the process of the rescue, our ships and sailors were constantly in danger,” he said.

The transport ministry earlier announced plans to send a robot submarine, possibly followed by divers, to explore and plug holes in the ship. No timeline was given for the mission.

Depending on conditions, divers might also be able to pump oil from the 85,000-ton vessel’s fuel tanks before they leak further and contaminate the seabed.

Ophir field shut down following FPSO power issue

Australian oil and gas company Octanex has informed that production from the Ophir field, offshore Malaysia, has been shut down following a power issue on the FPSO unit.

The Ophir field was developed via three production wells, a well head platform (WHP) and a floating production, storage and offloading (FPSO) vessel.

The field achieved first oil in November 2017 following the start of production on the 20th October.

On the 8th January, Octanex informed that the Ophir field was experiencing a non-routine production shutdown.

Production was shut-in following a power trip on the MTC Ledang FPSO which triggered a process shutdown on both the wellhead platform and the FPSO. Weather conditions delayed access to the wellhead platform for several days after rectification of the FPSO power issue.

Personnel were then mobilised to the wellhead platform to normalise the wells. However, start-up of production has thus far not been successful, Octanex said later that day.

Five workers missing in explosion at Oklahoma drilling site

Five workers were missing after a fiery explosion on Monday 22nd January at an oil and gas drilling site in eastern Oklahoma, officials said.

The fire continued to burn, fed by gas from a well being drilled for Red Mountain Energy by Patterson-UTI Energy Inc., preventing a full search of the scene, said Kevin Enloe, Director of the Pittsburg County Emergency Management Department.

Fire control specialists were called to the scene, but were still developing a plan to extinguish the blaze, he said in a broadcast briefing on the afternoon of the 22nd January.

Enloe declined to provide the names or other details about the five missing workers. He said one of the 22 workers at the site when the explosion occurred was treated for injuries and 16 others were uninjured.

The blast occurred at around 9:00 a.m. (15:00 GMT) near Quinton, Oklahoma, about 146 miles (235 km) from Oklahoma City.

Patterson-UTI, a contract driller, said in a statement that some of its employees were missing after the fire. The company said it was cooperating with first responders and authorities on the scene.

The US Occupational Safety and Health Administration, which investigates fatal workplace accidents, was closed on Monday because of the federal government shutdown.

Boots & Coots, Halliburton’s well control and prevention service, had been called to put out the fire. Staff from the state’s energy regulator, the Oklahoma Corporation Commission, were also on the scene, officials said.

Oil tanker struck offshore platform on New Year’s Eve

A Portuguese-flagged chemical tanker sustained damage after hitting an offshore platform in the North Sea on New Year’s Eve.

Owned by John T. Essberger from Germany, the 2013-built tanker Elsa Essberger was on its way from Antwerp to Malmo when it struck an unused production platform in the North Sea.

It struck the Unocal Q1 Halfweg platform, located some 28 kilometres west of Julianadorp, causing damage to the platform’s legs and its bow. No pollution has been reported.

According to VesselsValue (VV) data, the chemical tanker did not continue its journey to Malmo, as the VV map showed the vessel as moored in Rotterdam.

As for the platform hit by the tanker, it was installed in March 1995 in the Dutch sector of the southern North Sea. It was designed for ‘self-installation’ and consists of a concrete gravity base which supports a manned process deck by means of four tubular steel legs in 24 metres water depth.

The platform was initially operated by Unocal, a company later taken over by Chevron. Chevron then sold its Dutch offshore assets to Petrogas in 2014.

Four piracy incidents reported to ReCAAP ISC in week to the 25th December

There were four incidents of armed robbery against ships reported to the ReCAAP ISC in the week leading up to the 25th December.

One was in Maheshkhali Island, Bangladesh, one in Cam Pha, Vietnam, and two occurred in Muara Berau, Indonesia, on the same day, on the same ship.

The Bangladesh incident involved the tug boat Crest Spartan 8 about 22 nautical miles south-west of Maheshkhali Island, Bangladesh. While approaching Chittagong anchorage area, the crew noticed two fishing boats with eight to ten perpetrators, which came alongside and boarded the barge which was being towed by the tugboat. The master attempted, but failed, to contact Chittagong Port Control, but, to no avail. The master and crew continued to monitor the barge and maintain speed until reaching the anchorage area. Several items were stolen from the barge but there was no damage or injury to any of the crew.

Bulker Tron Legacy was at Hon Net anchorage area, Cam Pha, Vietnam, when six perpetrators were observed near the paint store and several others were seen on the forecastle deck. Initially the crew thought that that they were stevedores, but when he saw one of them carrying a bucket of paint from the paint store, he suspected they were thieves. The crew informed the duty
officer, who informed the master. The crew made a public announcement, raised the alarm and mustered the crew. Upon hearing the alarm, the perpetrators escaped via a cargo barge moored alongside with 882 litres of paint.

Bulk carrier GH Northern Dancer was at anchor at Muara Berau, Samarinda, East Kalimantan, Indonesia, when the crew sighted three perpetrators near the forecastle deck and forward of No. 1 Ch. The criminals escaped in a small boat alongside the ship after stealing two mooring ropes.

Then, less than 24 hours later, the same ship in the same anchorage was boarded by four thieves armed with long knives through the port anchor hawse pipe via the anchor chain. Once again the crew spotted the perpetrators and raised the alarm, and once again the perpetrators fled. This time nothing was stolen.

Pipeline fire causes Nigeria to lose almost half its power output

A fire at a Nigerian pipeline interrupted gas supplies to companies generating more than 3,000 MW in Africa’s most populous nation, the government said.

The fire at the Escravos-Lagos pipeline owned by the Nigerian National Petroleum Corporation (NNPC) in the southern Edo state, required a shutdown of the pipeline supplying gas to the 1,320-MW Egbin power plant, the nation’s biggest, and five others, according to an emailed statement by the Power, Works and Housing Ministry.

The interruption tripped the national transmission grid on the 2nd January, it said.

Most of Nigeria’s power is from thermal generation. The gas produced by oil and gas companies is delivered to the power stations through pipelines owned and operated by Nigerian Gas Processing and Transportation Company, a unit of state-owned NNPC.

Electricity production in Africa’s biggest oil producer is hampered by inadequate gas supply and power infrastructure. The nation, which has about 180 million people, generated a record 7,000 MW in December, 5,155 MW of which was distributed, the ministry said. South Africa, with a third of the population, has capacity to make more than 40,000 MW.

The state-run Transmission Company of Nigeria, which owns and operates the national grid, and the generating companies are working to restore operations, according to the statement.

Libya’s oil output revival thwarted by pipeline explosion

Libya’s oil industry revival suffered a setback on the 26th December after an explosion at a pipeline carrying crude to the OPEC nation’s biggest export terminal.

Oil rallied as a result.

Production will drop by 70,000 to 100,000 bopd after the explosion, the state-run National Oil Corporation said in a statement. The pipeline, operated by Waha Oil Company, carries crude to the Es Sider terminal. The blast occurred 81 miles south of Sidra.

Output in Libya, where oil fields have endured sporadic shutdowns and disruptions due to protests, power blackouts and fighting, rose to about one MMbpd this year, the highest level in four years, and was recently about that level. Brent crude, the global benchmark, rose as much as 2.5% after news of the explosion.

Waha is a joint venture between Libya’s National Oil, Hess Corporation, Marathon Oil Corporation and ConocoPhillips.

Incident at Romanian well, staff reported safe

International exploration and production firm Serinus Energy Inc. has revealed that an incident occurred at the Moftinu 1001 well in Romania at 01:49 a.m. CET on the 18th December.

During a routine operation to prepare the well for future production, an unexpected gas release was said to have occurred and subsequently ignited. At the time of the incident the Blow-out Preventer was in the process of being attached to the well head.

Serinus confirmed that the wellsite was evacuated and secured and all company and contractor staff were reported as safe with no injuries. The company’s well supervisor and drilling contractor are now working to reestablish control of the well.

The cause of the incident is not yet known. Serinus has stated that its primary consideration is to safely and quickly bring the gas well under control.

Oil and gas analysts at GMP FirstEnergy said market reaction to the news was negative, pending further details on the extent of the damage on the well and the cost to kill the well.

“We however note that wells in Romania are very cheap and a re-drill of the well, which is probably the worst case, will not be costly,” the analysts said in a brief research note.

“We also note that the reservoir is not highly pressured, which probably implies that the flare is not particularly large,” the analysts added.

Nobody hurt in Central Texas natural gas pipeline fire

Authorities were trying to determine what sparked a natural gas pipeline fire in Central Texas in an early-morning blaze which could be seen for several miles.

The Burleson County Sheriff’s Office said nobody was hurt in the fire, reported about 03:00 a.m. on the 13th December at a rural site near Somerville, about 90 miles (144 kilometres) east of Austin.

The line is operated by Dallas-based Energy Transfer Partners. Spokeswoman Vicki Granado said the affected section of pipeline was quickly shut and the fire safely burned itself out by the afternoon.

Granado said company officials are assessing the site and will make repairs. She said gas had been rerouted so there had been minimal impact to deliveries.

Deputies closed a nearby road for several hours, as a precaution.

Shell says fire extinguished at Singapore refinery-petchem plant

Royal Dutch Shell said a fire at its Singapore refinery-petrochemical site was extinguished on the 10th December and no one was hurt in the incident.

The fire occurred at one of its manufacturing units on Bukom Island at about 10:00 a.m. (02:00 GMT) and was extinguished shortly after by the site’s firefighters, a company spokesperson said in a statement.

Shell was investigating the cause of the incident and did not expect any impact on its customers, she said.

Shell did not specify which unit had been affected.

The Bukom site, Shell’s largest wholly-owned plant, has a 500,000-barrel-per-day (bpd) refinery and a steam cracker which produces more than 900,000 tonnes of ethylene a year.


Insurance News

 

London’s Brexit-related job losses may not be as high as initially feared

British banking, insurance and asset management job losses to the European Union due to Brexit might not be as heavy as initially feared, the City of London financial district said on the 8th January.

Jeremy Browne, the city’s EU envoy, said UK-based firms opening hubs in the bloc after Britain leaves next year are looking for the least disruption possible. “It may end up for quite a lot of them being a bit less dramatic than it might appear,” he said as Britain embarks on a new phase of talks with the EU over its exit.

“I don’t think they are saying ‘Shall we abandon London?’,” Mr Browne told a press briefing as he began a five-month trip around EU states to meet policymakers.

Financial services in Britain raise over £70 billion (US$95 billion) in taxes annually, but Mr Browne said new hubs will likely be staffed by hundreds rather than thousands.

The City expects 5,000 to 13,000 job losses among the 1.1 million people employed in the sector across Britain. This chimes with 10,000 losses the Bank of England said is plausible on Brexit Day in March 2019.

Consultants like Oliver Wyman have forecast losses of 75,000 or far higher, though over several years.

Mr Browne, a former junior UK foreign minister, said France sees winning UK financial jobs as a “national endeavour” led by French President Emmanuel Macron. Germany is also courting financial jobs, but in a less “emotionally attached” way.

Unoccupied Ground
In December Britain and the EU agreed to open talks on a transition period and final trading terms. Mr Browne said transition should ideally not depart dramatically from the UK’s current links with the bloc, though some “tweaks” were inevitable. “Speed is of the essence,” he said.

The City wants an imaginative trade deal which is more comprehensive than the one negotiated by the bloc with Canada, but stopping short of joining Norway in the European Economic Area (EEA), he said.

Mr Browne refers to this as “unoccupied ground,” meaning no such trade deal on financial services has been done with the EU before.

Norway pays into the bloc’s budget and accepts free movement of EU citizens within its borders, conditions which pro-Brexit lawmakers in Britain reject on sovereignty grounds.

“There is a lot of space between Canada and being in the EEA,” Mr Browne said.

Adopting the EU’s “one-way” system of equivalence, whereby the EU grants market access to foreign banks if they operate under similar rules to those of the bloc, is a non-starter for most in the City, Mr Browne said.

“People are quite hard-line about not having equivalence as the final state,” Mr Browne said.

The City wants a trade deal which would allow the UK and EU to accept each other’s financial rules, with a mechanism to resolve any disputes, a more partnership-based approach than equivalence.

The EU is, however, very worried about how non-EU countries like Switzerland or the United States would react if it gave preferential treatment to the City, Mr Browne said.

The Bank of England said in December it would spare EU banks in London from having to find costly capital to convert from branches to subsidiaries after Brexit if EU regulators reciprocated.

Financial lawyers have chipped in, saying that some form of equivalence may be Britain’s most realistic bet in the immediate term given the time it takes to negotiate trade deals.

Pioneer’s Syndicate 1980 starts underwriting 1/1

Pioneer Underwriters, the underwriting group within Minova Insurance Holdings, received approval from Lloyd’s for Syndicate 1980 to commence underwriting business attaching on or after the 1st January 2018.

Pioneer Syndicate 1980 will have a gross premium income of £278 million and will underwrite a broad cross-section of business including property, casualty, marine and energy. The Syndicate will be managed by Asta.

AXIS receives Lloyd’s approval to manage Novae and SPS syndicates

AXIS Capital Holdings has received authorisation to create a single managing agent structure for its operations at Lloyd’s.

Following the Lloyd’s authorisation, which became effective on the 1st January, AXIS Managing Agency assumed the oversight of Novae Syndicate 2007 and SPS 6129.

Syndicate 2007 and SPS 6129 will operate alongside AXIS Syndicate 1686, which it currently manages. AXIS has also initiated plans to consolidate its Lloyd’s business into AXIS Syndicate 1686, under management of AXIS Managing Agency, and anticipates completing that process from the 1st January 2019.

GIC Re gets green light for new Lloyd’s syndicate

The General Insurance Corporation of India (GIC Re) has received “in principle” approval from the Lloyd’s Franchise Board to create a new syndicate, its managing agency Pembroke has confirmed.

Earlier this year, the Indian reinsurer had revealed its plan to expand its presence in select overseas markets, and establish a syndicate at Lloyd’s of London which will write a variety of classes of business from different parts of the world.

Pembroke, a division of Ironshore, is a specialist provider of Lloyd’s managing agency services to third parties. The company said that the combination of Pembroke’s specialty lines underwriting capability and GIC Re’s regional expertise will create mutually beneficial development opportunities for GIC Re, Pembroke and other participants in the Lloyd’s market.

Maritime London to merge with International Maritime Industries Forum

UK maritime trade promotional body Maritime London is to incorporate the activities of the International Maritime Industries Forum (IMIF) during 2018.

Maritime London CEO Jos Standerwick said that, given the overlap in objectives and members, Maritime London was a natural partner when IMIF began to consider its future last year. “I believe that this merger will benefit greatly the members of both Maritime London and IMIF, providing a wider platform and creating a stronger voice for the members of both organisations, not least in ensuring that the UK and London remain the leading international maritime professional services centre,” he said.

Separately, four new directors were approved to join the Maritime London Board at the Annual General Meeting on the 18th December: Ian Gaunt; Richard Greiner; Mark Jackson; and Britt Pickering.

Ian Gaunt is President of the London Maritime Arbitrators Association (LMAA) and has been a full-time arbitrator since 2008.

Richard Greiner is a Partner at Moore Stephens and has more than 30 years’ experience in providing assurance and advisory services to the shipping industry.

Mark Jackson is CEO of the Baltic Exchange. He served as Chairman of the Baltic between 2009 and 2012 and previously worked as a broker at Gibsons and latterly was Chief Commercial Officer at A.M. Nomikos.

Britt Pickering is Legal and Claims Director of at The Shipowners’ Club.

Rodney Lenthall, David Moorhouse and Jeremy Penn have stepped down from the Board.

Industry needs a marine investigation code

A marine investigation code needs to be created which would accelerate and simplify the process of managing a marine casualty, according to Captain Jon Walker, Regional Director of Asia & Australia LOC IUMI Professional Partner at www.loc-group.com

In the latest newsletter from IUMI, Captain Walker said that local jurisdictions were often unprepared, lacking in understanding and unwilling to cooperate, thus lengthening the investigation process and having a negative impact on the environment, the vessel’s crew and/or the damaged ship.

Captain Walker said that problems arose when a local authority did not know the limit of its jurisdiction, and assumed authority of a casualty when they had no right to do so. He said that there had been too many examples of where the recovery of a grounded or damaged vessel had continued for many years, where the investigative and wreck removal process was flawed, or where the
master ended up in jail or otherwise detained.

Captain Walker believed this issue could be addressed through a marine investigation code, driven by the International Maritime Organization (IMO). This code would compel sovereign states to clarify their jurisdictions with their governments prior to any incident.

This in turn would mean that, in the immediate aftermath of an incident, first responders would know who to deal with and what were the limits of their authority. He said that a marine investigation code “could establish transparent, consistent procedures across national borders ensuring the best response from all parties”. Responders would be able to coordinate with
an authority that understood the maritime sector and the implications of a shipping casualty.

Reinsurers have a crucial role to play in Cyber Solutions. Dennis Culligan sets out his thoughts

The debate over cyber cover continues and Dennis Culligan of Longdown|EIC Risk Consulting Ltd. warns that the market has to ensure that what it offers is fit for purpose

Much has been said about the need for the re/insurance market to drive growth into new areas. The closure of the protection gap for cyber risks remains a chasm which provides opportunities, but so do the changing needs of the market’s existing clients and none more so than the issues around the growing cyber threat.

In the marine and energy space, for so long identified as an area where firms were behind the curve on security efforts, we have witnessed a major shock with Maersk badly affected by the Wannacry attack. For one of the world’s largest shipping firms to fall foul of cyber criminals is a wake-up call to the wider international marine and energy community.

However, is the re/insurance sector providing the products which meet the needs of the client? Since 2013, cyber risk has remained in the top three concerns reported by corporate risk managers in Longdown’s annual survey of risk and insurance challenges. So far, however, this has not translated to a large scale purchase of cyber insurance products beyond the area of compensation for third party data breach – predominantly of interest to retailers and financial service companies.

A major concern of energy companies at present is the fact there are a myriad of definitions as to what exactly constitutes a cyber risk event across the underwriting community.

As such, the fears around the level of potential exposure, the lack of claims data and the concerns over the ability of cyber criminals or governments to launch crippling cyber-attacks has seen insurers become more risk averse.

The question we are asked is whether cyber cover should be provided in traditional policies, or should it be ring-fenced in specific cyber policies. Our view remains that a stand-alone cyber cover is probably the better option as long as the cover fits to the specific needs of the client.

At present, cyber products tend to focus on third party loss in terms of data breach or theft. For the energy sector, the much greater threat can be damage to assets and potentially catastrophic revenue loss caused by hackers accessing Supervisory and Control Data Access (SCADA) systems.

A second issue remains that of the availability of levels and limits of coverage. The questions around the exposures and risk aggregation continue and, as such, firms have struggled to access the necessary levels of coverage to meet their needs.

Bespoke Coverage
The question, therefore, is how the market reacts, and in many ways that response will be driven by the reinsurance market. It is clear that the primary underwriters remain reluctant, at best, to commit to the limits which many major corporations are keen to buy and also to deliver more bespoke coverages which meet the specific needs of certain sectors of the business community. Some senior market practitioners have doubted whether cyber risk should be the subject of conventional insurance at all, given the systemic nature of the exposure and the difficulty in assessing aggregations.

At a time when the market is looking at new business opportunities, however, the provision of cyber cover is an opportunity which is not only current but one where there is significant pent-up demand from insureds across all sectors. The increasing regulatory attention on cyber risk which will require companies in certain sectors to report cyber hacks will only accelerate such demand. The consideration of cyber insurance is rapidly becoming part of good corporate governance.

Cyber insurance should no longer be deemed as a potential for the future. The need for cyber solutions is current and real but it will take the reinsurance market to commit to supporting its cedants to a level which will make the coverage viable for the market to truly establish itself.

India enables offshore insurance business in new financial hub

The Insurance Regulatory Development Authority of India (IRDAI) has issued enabling regulations for undertaking offshore insurance business in Gujarat International Finance Tec-City (GIFT), India’s only operational International Financial Services Centre (IFSC).

GIFT is being developed as a global financial and IT services hub, a first of its kind in India, designed to be at or above par with globally benchmarked financial centres.

Under the regulations, for the first time in the country, foreign insurers are permitted to open an IFSC Insurance Office (IIO) at GIFT IFSC. As GIFT IFSC has been notified as a foreign territory by the Government of India, foreign direct insurers (life, non-life & general) and foreign re/insurers are now permitted to open offices and undertake dollar denominated business there.

Ajay Pandey, MD & Group CEO, GIFT City, said, “The vision of the Honourable Prime Minister of India of making India a Hub for International Financial Services can be achieved with business friendly regulations and competitive tax regime. We are thankful to Department of Financial Services & IRDAI for issuing business regulations for IFSC which would go long way in making GIFT IFSC a hub for Offshore Insurance business.

“GIFT IFSC already hosts three major insurance players, GIC Re, New India and ECGC, and five insurance broking entities. With the business guidelines in place, we are now hopeful that foreign and domestic insurance companies would participate in making GIFT IFSC a hub for International Insurance business.”

The Government of India has provided a competitive tax regime for the IFSC units and thereby units are provided a ten-year tax holiday (of which the first five years is a complete tax holiday and for next five years there’s a tax reduction of 50%),which is applicable for all insurers operating within GIFT IFSC. For export of services, insurance companies operating from IFSC are exempted from GST.

GIFT IFSC, being a foreign territory, mainly conducts offshore business. Thus, the restriction on shareholding does not apply in IFSC and thereby a foreign direct insurer has the option to set up operations directly without any local partner.

The move would also help Indian insurers to set up their offshore office in GIFT SEZ IFSC to undertake dollar business which otherwise was restricted in India. This would become a big enabler for Indian direct and re/insurance players as it provides them a foreign branch in close proximity which would be operationally cost effective.

UK regulator to allow EU insurers to operate normally post-Brexit

A number of representative bodies and Lloyd’s have welcomed the announcement by the Bank of England that it will allow EU banks and insurers to operate normally in the UK post-Brexit and is undertaking a review of its authorising and supervision policies for international firms.

“The foundation of the Bank of England’s approach is the presumption that there will continue to be a high degree of supervisory cooperation between the UK and the EU. On this basis, EEA banks and insurers may (if they are not conducting material retail business) apply for authorisation to operate as a branch in the UK.

“There are expected to be no implications of the proposed policy for the current operations of banks and insurers from non-EEA countries such as the US, Switzerland and Japan,” the bank said in a statement on the 20th December.

It said its approach is rooted in the “substantial evidence” that openness supports economic dynamism through a range of channels, raising growth and boosting living standards.

“Keeping the UK’s financial system open to foreign institutions is in the best interests of the UK, EU and global economies,” it said.

“Having a large financial sector brings substantial benefits to the UK. A deep and liquid financial market lowers the cost of finance to households and businesses.”

Dave Matcham, Cief Executive of the International Underwriting Association (IUA), welcomed news of the UK regulator’s intention to accommodate branches of EU insurers post-Brexit.

He said, “This is a very welcome announcement for many IUA members. The London company market has a significant number of firms operating as branches of parent companies located elsewhere in the EU. Our recent London Company Market Statistics Report estimates premium totalling £7.383 billion was generated by such business models in 2016.

“The move to enable this business to continue without any unnecessary, additional regulatory barriers post-Brexit is a very positive step and demonstrates great confidence in our sector.”

Lloyd’s also welcomed the publication by the Bank of England of its approach to the supervision of international insurers, and to branch authorisation and supervision.

Bruce Carnegie-Brown, Chairman of Lloyd’s, said, “We welcome the government’s proactive approach to the supervision of international insurers, which, if applied, would help the continuity of business through the post-Brexit implementation period. This will provide greater certainty to insurers and UK policyholders, reinforcing London’s position as the world’s leading insurance centre. This is a very positive development, which will contribute to financial stability to the benefit of all parties in the insurance sector.”

Travelers creates new EU subsidiary in Brexit move

Property/casualty insurer Travelers Europe is to apply to the Central Bank of Ireland for authorisation of a new, wholly-owned insurance subsidiary incorporated in the Republic of Ireland, according to a statement issued on the 19th December.

Based in Dublin, the new subsidiary will enable Travelers to continue to serve its customers and broking partners in Ireland and across Europe seamlessly when the UK exits the European Union, as currently planned in March 2019.

“Ireland is a natural choice for Travelers to establish its EU-based subsidiary,” said Matthew Wilson, CEO of Travelers Europe. “We have been present in the Irish general insurance market for more than 20 years, and our new company will utilise our existing branch resources. We look forward to deepening our relationships with brokers, customers and regulators in Ireland, as well as continuing to serve our policyholders who have assets throughout Europe.”

The establishment of a new subsidiary in Ireland is subject to receiving all necessary regulatory approvals and to future regulatory developments.

The company stated that this proposed plan will not affect Travelers’ significant UK-based operations, comprising its general insurance business (Travelers Insurance Company Limited) and Lloyd’s syndicate, which will continue to operate under existing UK licences.

Navigators buys Belgian specialty insurers in Europe push

Global specialty insurance holding The Navigators Group has entered into a share purchase agreement for the acquisition of all of the shares of Antwerpbased Assurances Continentales – Continentale Verzekeringen NV (ASCO) and Bracht, Deckers & Mackelbert NV (BDM).

The proposed acquisition is part of Navigators’ strategy of expanding its specialty insurance expertise to more brokers and insureds across Europe, according to a company statement.

As aggregate consideration for the acquisition of ASCO and BDM, Navigators will pay €35 million in cash at the closing of the transaction.

ASCO is a specialty insurance company offering marine and property and casualty insurance.

BDM is an insurance underwriting agency which underwrites risk coverage in niche markets on behalf of ASCO and a number of major international insurers.

Additionally, as part of the transaction, Navigators will acquire all the shares of Canal Re SA, a Luxembourg reinsurance company which is a wholly-owned subsidiary of ASCO. The acquisition reinforces Navigators’ presence in the European Union’s single market, enabling Navigators to best serve its European clients after Brexit, and also provides opportunity for BDM and ASCO to take their expertise to a wider European audience.

The transaction is subject to regulatory approval and is anticipated to close in the first half of 2018.


People in the News

 

CNA Hardy appoints CEO of new Brexit unit in Luxembourg

CNA Hardy, the specialist commercial insurance provider for clients within the Lloyd’s market, has appointed Stuart Middleton as CEO of its Luxembourg subsidiary.

Mr Middleton has held numerous leadership roles – most recently, CUO and Joint Managing Director of EXIN’s wholesale division, based in Barcelona.

CNA Hardy had earlier revealed that it is launching a new European subsidiary in Luxembourg after Brexit. The process of establishment is already underway, and is expected to be complete by early 2019.

Reporting to CEO Dave Brosnan, Mr Middleton will be responsible for building out CNA Hardy’s operations and capabilities across Europe. He will also recruit a local management team to oversee its risk, finance and compliance functions in Luxembourg.

Standard Club appoints new head of New York office

Mutual insurance association The Standard Club has appointed Leanne O’Loughlin President / Regional Director of Charles Taylor P&I Management (Americas), succeeding LeRoy Lambert, who has assumed the role of General Counsel.

Leanne joined The Standard Club’s London office in 2010, before transferring to the New York office in 2013.

LeRoy joined The Standard Club in 2009 after 25 years in private practice, latterly as a partner with Blank Rome.

Cunningham Lindsey appoints new boss in Singapore

Cunningham Lindsey, the global claims management and loss adjusting firm, has appointed David Seng as Chief Executive for its Singapore business.

Mr Seng joined Cunningham Lindsey in 2004 and has built and led Cunningham Lindsey Singapore’s adjusting team for a number of years, dealing with liability claims throughout the Asia region.

In conjunction with Mr Seng’s promotion, former Cunningham Lindsey Singapore CEO, Robert Williams, will move to a major and complex loss regional role. Mr Williams has been based in Singapore since 1991.

Beazley names Moy to new US marine insurance underwriting team

Specialty insurer Beazley has appointed John Moy as US Marine Insurance Underwriter within its newly-launched US marine platform.

Mr Moy will be responsible for underwriting and building the company’s US hull, protection & indemnity (P&I) and liability business for the marine and marine construction sectors.

He will report to Steve Vivian, Head of US Marine at Beazley in New York.

Moy joins from Water Quality Syndicate in New York where he was chief underwriting officer.

Pioneer launches ocean marine division

Pioneer Underwriters has launched a new ocean marine underwriting capability with the appointment of Zach McAbee as head of the new unit.

The new division will underwrite hull/P&I and primary & excess marine liability, initially focusing on the north-west region of the US.

Mr McAbee is based in Seattle and reports to Gene Hinman, Chief Executive of Pioneer’s US operation.

Travelers names Rnjak to lead its Lloyd’s platform

Travelers Europe has announced it has appointed Nick Rnjak to lead Travelers Syndicate Management Ltd., its wholly-owned platform in the Lloyd’s insurance market.

Mr Rnjak most recently served as chief underwriting officer for Travelers Syndicate. In his new role, he will continue to focus on expanding its industry sector expertise and building relationships with brokers at Lloyd’s. He will report to Travelers Europe Chief Executive Officer Matthew Wilson.

Hamilton hires Novae head of casualty for Lloyd’s managing agency

Hamilton Underwriting, the managing agency of Syndicate 3334 and the Lloyd’s operations of Bermuda-based Hamilton Insurance Group, has hired Robert Patten as Head of Casualty.

Mr Patten joins Hamilton from Novae Insurance where he also held the position of head of casualty.

In his new role, Mr Patten will report to Active Underwriter and Head of Treaty Trevor Carvey.

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