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Q1 2022

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The UK terrorism mutual, Pool Re, has completed its Excess of Loss retro program, and has surpassed a record GBP2.5 billion of limit ceded to traditional and collateralized markets.
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By John Cooper , 

Global Chief Client Officer, Energy & Power, Marsh Specialty

05/03/2022 · 4 min read

The UK terrorism mutual, Pool Re, has completed its Excess of Loss retro program, and has surpassed a record GBP2.5 billion of limit ceded to traditional and collateralized markets.

The program is now the largest terrorism pool reinsurance treaty in the industry, larger than France’s GAREAT and the Australian Reinsurance Pool Corporation (ARPC).

The London Joint Rig Committee (JRC) recently held a forum to update brokers and underwriters on their latest activities:

  • The JRC is exploring options to rename the committee to encompass the energy transition.
  • The JRC has created a number of new sub-committees to reflect the energy transition.
  • The proposed revisions to the EED 8/86 form and issuance of “damage to existing property” endorsements for offshore construction are expected later in 2022.
  • The sustainability working group has produced a transition questionnaire (JR2021-033) designed to help market practitioners collect information relating to their clients’ progress towards energy transition, sustainability, and ESG considerations.
  • The offshore wind subcommittee is currently developing a “series loss”. In addition, it has issued a cable protection clause (JR2022-034) in response to an announcement in 2021 by a major offshore wind developer about issues with the design of cable protection systems. These issues affected 10 separate wind farms, with potential losses of US$400 million. It was found that cables were moving across the scour protection, causing abrasion to the cable protection. It is believed that many other developers adopted a similar design. The new clause aids insurers with mitigating future losses and pressures developers to design better cable protection systems.

Lloyd’s has released a new report to help insurers and risk managers navigate the significant overlap between geopolitical risks and climate change. The report, Shifting powers: Climate cooperation, competition or chaos? is the second in a series produced in partnership with the Cambridge Centre for Risk Studies. The report assesses global political developments in the coming century, and looks at how the global energy transition process could cause changes to risk. The report concludes that while friction between like-minded states could lead to a “green cold war”, nation-states are expected to unite through a blend of cooperation and competition to tackle the challenges posed by climate change.

Allianz Global Corporate & Specialty has issued its eleventh Allianz Risk Barometer survey. Cyber, business interruption, and natural disasters are the top three business risks globally in 2022, based on responses from more than 2,650 risk management experts in 89 countries and territories. Pandemic outbreak drops from second to fourth, as companies feel adequately prepared for future outbreaks. Natural catastrophes and climate change rose significantly in the annual rankings as extreme weather events and transition risks mount.

Lloyd’s has announced its 2021 full year financial results, with an overall profit of GBP2.3 billion (2020: GBP0.9 billion loss) and a combined ratio of 93.5% (2020: 110.3%). According to Lloyd’s, its premium rates increased by 10.9%, continuing the trend of 16 consecutive quarters of upward rate movement. Lloyd’s believes the ongoing Russia-Ukraine crisis will have a major impact on the market in 2022, and is in close dialogue with market partners to understand exposures. Business underwritten in Ukraine, Russia, and Belarus currently represents less than 1% of Lloyd’s global footprint. Direct and indirect claims are expected to fall within manageable tolerances, and are not anticipated to create solvency challenges.

Lloyd’s gross written premium across all energy lines was GBP1.262 billion (2020: GBP1,265 billion), a decrease of 0.2%. The accident year ratio was 98.0% (2020: 99.2%) however, this was boosted by 6.5% of prior year releases (2020: 8.2%) making the combined ratio 91.5% (2020: 91.0%) with overall profit at GBP71 million (2020: GBP79 million).

According to Lloyd’s, the pricing environment across all energy property and casualty lines remained positive throughout 2021. The market stated that the disparity in pricing increases for upstream and downstream lines closed significantly during the year. Downstream lines (including power) continued to report double-digit price increases (albeit to a lesser degree than in 2020) compared to lower single-digit increases for upstream property, exploration, and production exposures.

Lloyd’s said that a deceleration of pricing increases is expected in 2022. The remedial actions taken by the market in the downstream property and casualty lines will likely see more capacity return in 2022, with pricing, and terms and conditions, expected to improve compared to pre-2019. The abundance of available capacity in the competitive upstream market remains relatively stable.

Lloyd’s expects substantial developments in the renewable energy sector, but poor underwriting profitability, particularly in offshore wind, may cause tightening on terms and pricing.

Casualty, which includes general liability and professional lines, as well as cyber, and accident and health, was the only class of business that continued to report a loss in 2021 of GBP17 million, significantly less than the 2020 loss of GBP688 million. Although the accident year ratio was a positive result at 95.6% (2020: 105.2%), prior year loss reserve increases eroded slightly to give a combined ratio of 100.3% (2020:110.3%).

According to Lloyd’s, the casualty market has seen significant pricing change in almost all lines of business, particularly cyber, and directors’ and officers’ liability. There was a marked decrease in average line sizes across most segments as carriers sought to reduce volatility. Lloyd’s added that while the market correction is significant, the prevailing sentiment is that pricing adequacy remains in question.

Looking ahead, Lloyd’s said there continues to be a growing focus on social and economic inflation, adding that while a lot of the focus has been in the US, other territories such as Australia and Canada are starting to show similar trends across all casualty lines, due to increased regulation, litigation, and inflation pressures in these territories.

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