Line of Business
The downstream market was under serious capacity pressure following the losses experienced in recent years. This was an continuation and acceleration of the trend flagged last year. Rate increases ranged between 30% and 60% for clean business and higher for those with losses, with average rate rises of approx. 40%.
Barents Re Energy underwriting team is based in London and is focused on providing re/insurance capacity for Energy risks worldwide, excluding those based in the USA. We avoid risks downstream of refining and related risks such as power, fertilizer and methanol. Our capacity is composite and responds to both upstream and downstream, separately or as a package.
Our trading environment for 2020 was positive for downstream and upstream risks in different ways.
The downstream market was under serious capacity pressure following the losses experienced in recent years. This was an continuation and acceleration of the trend flagged last year. Rate increases ranged between 30% and 60% for clean business and higher for those with losses, with average rate rises of approx. 40%. Barents Re capacity remains intact as we have missed most of the losses in the sector which have fallen outside our appetite or scope. We therefore continue to provide much needed capacity to our brokers and clients and capitalize on the premium growth opportunity. There have also been significant improvements in policy wordings for downstream, particularly in respect to business interruption cover on downstream business.
Less business interruption cover was generally purchased as profits are down and many clients have elected to insure their fixed costs only. Captives are also absorbing more of the commercial market placements. On balance, however, the downstream premium pool continues to increase, whereas the overall capacity has decreased.
The upstream sector has not suffered losses in the same way and a precarious balance between profit and loss exists where policy rates are at historical lows and market capacity is at a historical high. The market however has reacted to the last US Hurricane season and set a floor on rate reductions and even sustaining modest increases at between 2.5% to 5%. Pressure on the upstream market overall premium was further exacerbated by lack of confidence in the oil price. This has led to reduced project activity, more modest drilling campaigns and lack of activity within the contractor fleets. Revenues are down and consequently the policy adjustments result in negative rather than positive premium flows.
As a composite provider of capacity and with the market gears spinning at very different speeds, Barents Re is strongly positioned to leverage its capacity deployment across the spectrum of Energy re/insurance activity. The ‘Subscription market’ has long since collapsed in the downstream sector and the upstream market is beginning to default to differential terms. Electronic re/insurance placement is here to stay and will accelerate this process. Our Energy underwriting team is well qualified to navigate these challenging waters and continue to provide positive results.