The role of the Middle Eastern energy insurance marketplace has experienced a significant metamorphosis during 2019 and the beginning of 2020, which sees a general shift of underwriting authority from the region back to "specialty centres" - which in most cases means the authority moving back to London, says Mr Will Peilow, MEA regional leader, of Downstream Natural Resources GB at Willis Towers Watson (WTW).
In an article in Energy Market Review 2020, published by WTW, he says that the shift of authority will itself be compounded by underwriting results in the sector, which remain less than satisfactory despite recent hardening in rates and is justified by major reinsurers wanting to instil a tighter discipline and consistency of oil & gas underwriting regardless of region.
The retrenchment of authority “back to centre” raises question marks in the broking community, particularly amongst those with a global footprint, as to how they access this capacity and are faced with broking with regional underwriters with a greater appetite for risks in the Middle East or broking with counterparts in London who may have the ultimate decision making powers related to deployment of capacity and setting of terms.
In 2019 and at the beginning of 2020, the Dubai International Financial Centre (DIFC) has lost (or announced the loss of) a number of (re)insurance brands, which may be seen as a significant blow to supporters of the regional energy marketplace. These include, but are not limited to: Allianz, Asia Capital Re, Swiss Re Corporate Solutions and Lloyd’s Talbot.
Most of these brands still have access points in other trading hubs such as London, but it remains to be seen as to whether underwriters sitting outside the Middle East have the appetite to write risks from that region.
Additionally, the region has seen a number of credit rating agency downgrades, which in isolation are not a major cause for concern but are still a significant illustration of the wider region’s reinsurance market’s lack of resilience.
Mr Peilow says that the scale of new capacity entering the region has not been sufficient to replace the levels from insurers which have scaled back their operations in recent years. The general trend for the small amount of capacity entering the region is to be focused on Managing General Underwriters (MGAs) that are not limited to Aspire Underwriting and Arma rather than on traditional reinsurers.
Many have questioned why there has not been a greater demand for reinsurers to set up operations in the Middle East during 2019 and beyond; this can be justified by the experience of other reinsurers in the region. While there have been successes, particularly where reinsurers have been able to apply international underwriting expertise to regional understanding of the energy industry and risks facing the sector, setting up in the DIFC and wider Middle East region is still seen by many as a hub from which there have been a number of exits in recent years; it is also associated with having a high cost base in terms of real estate and cost of operating a team.
Towing the line
Aside from the factors affecting the region specifically, themes relevant to the wider energy reinsurance marketplace are as relevant than ever, not limited to a focus on the importance of risk quality and the provision of detailed underwriting information, demonstrating risk quality as well as reinsurers focusing on a “return to technical rating” rather than a specific percentage increase being applied to renewals.