Aon’s 11th Energy Insurance Training Seminar

Upstream EnergyMarket Update

July 2011

Andrew Gray

The Energy Market July Review

• 2010 post Deepwater Horizon rises were circa 15% - 20%

• Year end renewals subject to reduced rises circa 10% - 15%

• Two significant losses being the Maersk Gryphon USD 850m and

the Polycrest Jupiter USD 285M (USD 160m physical damage plus

USD 125m removal of wreck) have given Underwriters the poorest

underwriting result in the first quarter for quite some time.

• The consequence of which is that clients that were subject to the

post Deepwater Horizon rises are now renewing with rises of

between 5% and 10%.

• Expect this trend to continue for the remainder of the year.

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The Energy Market

THANKYOU

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The Energy Market

GET BACK TO WORK…….

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.0

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Losses excess US$5m Estimated Worldwide Premium (US$)

Energy losses 1990 – 2010 Excess of USD 5 million

US$ bil global energy losses 1990 – 2010 compared to global energy premium

Major Losses

2008 Gustav & Ike USD 4,250,000,000Other Offshore USD 1,500,000,000

USD 5,750,000,000

2009 Platform Impact USD 750,000,000Blow-Out USD 425,000,000Other Offshore USD 1,275,000,000

USD 2,450,000,000

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2009, What happened? • Reduced loss activity in 2009

• Capacity did not reduce, but GoM wind capacity limited

• Rate reductions in the 2nd half of 2009– Underwriters actively compete for new business and

market share

• Investment income recovered, but not to previous levels

• Industry achieves underwriting profit in 2009

• Capacity levels for 2010 unchanged

• Focus on catastrophe models and continued management of aggregates

• Lloyd’s declined requests from Syndicates for increased capacity

• Limited new entrants to the market

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2010, What happened?

HOWEVER

Continued focus to maintain income on quality accounts

Market competition increased as the year went on

Investment portfolios providing better returns to insurers.

Significant competition for international non-cat onshore

End Result

2009 Reductions continue into 20109

2010, What happened?

Until…………

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2010, What happened?

The Deepwater Horizon Loss

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Major Losses

2010 Rig Total Loss USD 560,000,000Blow-Out USD 200,000,000Rig Total Loss USD 235,000,000

USD 995,000,000

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2010, What happened?

• And Aban Pearl follows close behind• WAKEY !! WAKEY!! • Three losses: none of them enough in isolation to change the

market but collectively ….• The end of the soft cycle, the start of a hard cycle• Huge increase in Liability focus• Physical Damage Rates + 15% for clean renewals

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2010, What happened?

• But can it last…..?

• New or mobilised capacity is already arriving

• But so is another reinsurance season……..

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The Energy Market July Review

• 2010 post Deepwater Horizon rises were circa 15% - 20%

• Year end renewals subject to reduced rises circa 10% - 15%

• Two significant losses being the Maersk Gryphon USD 850m and

the Polycrest Jupiter USD 285M (USD 160m physical damage plus

USD 125m removal of wreck) have given Underwriters the poorest

underwriting result in the first quarter for quite some time.

• The consequence of which is that clients that were subject to the

post Deepwater Horizon rises are now renewing with rises of

between 5% and 10%.

• Expect this trend to continue for the remainder of the year.

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2011

FPSO Gryphon USD 900,000,000Rig Total Loss USD 275,000,000Tornado Damage USD 150,000,000Construction USD 150,000,000Blowout USD 40,000,000

USD1,515,000,000

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HOWEVER

• On 27th June Lloyd’s operation Ascot Underwriting Ltd. announced that it has increased its capacity from £600m to £650m to support its 2011 business plan. Andrew Brooks, CEO of Ascot Underwriting Ltd. said, "Market conditions are changing, providing Ascot with opportunities, particularly in the reinsurance sector. We have increased our capacity for the remainder of 2011 to allow us to maximise these opportunities and expand our business where appropriate

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2011 INTO 2012

The cycle continues……….

Lets wait and see…………….

Will the trend in rises continue?

How will the Reinsurance market react?

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The Energy Market

THANKYOU

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