ALESCO NEWSISSUE 7 – NOVEMBER 2016

TAKE FLIGHT...HOW TO ENSURE YOUR DRONE LIABILITY COVER ISN’T UP IN THE AIR

THIS ISSUEKRE COVERHigh value cover for potentially high value risks

LOSS UPDATELatest losses in the energy market

DRONESDealing with risk in the drone age

MEET THE TEAMAn interview with our construction liability team

FOCUS ON ASIALatest developments in the region

Welcome to the latest edition of Alesco News

It’s been an incredible month for Alesco, as we were shortlisted in two categories at the European Captive Service Awards for ‘Risk Consulting Initiative’ and ‘Actuarial Firm of the Year’ based on our innovative work in the area of actuarial support for our clients and our new “cat modelling” tool, which we’ll be announcing very soon!

The team were ‘Highly Commended’ in the Actuarial Firm category – an accolade that we are extremely proud of.

We are continuing to invest in our teams to enable us to focus on developing new and innovative products, as you will see from the interview with Mark Watson later in this edition of Alesco News, who has recently joined in our construction liability team. We were also joined this month by John Smith, formerly Head of Insurable Risk at BG, bringing his wealth of experience to our energy team.

This issue also has a focus on growing areas in the insurance world, with articles on drones and kidnap, ransom and extortion cover – both of which it can currently be difficult to see the value in until it’s too late.

We hope you enjoy this issue and look forward to providing more information on the developments in our products and teams in the coming months.

Simon Matson CEO

WELCOME TO

ALESCO NEWS

DESIGNING OUT RISK IN THE NEW DRONE AGE

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ALESCO NEWS

In 2010, the Federal Aviation Authority estimated that by 2020 there would be around 15,000 civilian unmanned aerial vehicles (UAVs) in operation across the United States1. Over 15,000 are now sold in the country every week and registration is now compulsory2. In the UK, there were 30 commercial drone operators in 20133; today there are hundreds and the popularity of affordable drones bought over the counter is rising fast as the costs come down3. And with this surge in use across a myriad of business, security, educational, research and personal applications comes significant owner/operator risks and liabilities.

Legislation is evolving and our own Civil Aviation Authority (CAA) has launched its own ‘drone code’. It comes as no surprise that civilian UAV flight rules hinge around using them in a way that must not endanger people or property. But still there are accidents:

• On 30th Sept 2015, air traffic controllers at LA Guardia Airport in New York reported that Republic Airlines Flight 6230 was ‘almost hit’ by a brightly coloured small drone at an altitude of 4,000 feet.

• According to the UK Airprox Board, there were 23 near misses between drones and aircraft in just six months between April and October 2015.

• Near misses have also been recorded at Norwich, Southend and Leeds Bradford airports.

• In 2014, a Cumbrian man was convicted of dangerous use of a recreational drone when he lost control of it near a nuclear submarine facility4.

UAVs are inherently more dangerous than manned craft and it’s not just about crashes or collisions with other aircraft. In April 2014, Australian triathlete Raija Ogden required stitches to a head wound after being accidentally hit by a videographer’s drone. And in 2003, teenager Tara Lipscombe was tragically killed when struck by a remotely piloted aircraft with a five foot wingspan.

This article takes a look at how you can lower the risks and potential liabilities of operating drones within your organisation.

The Drone Effect …Drone costs are coming down – the simplest can be picked up for under £30 – and such is the range on offer that just £500 will now buy you a robust vehicle with good range, endurance and payload capacity. Payload is an area that offers its own risks of loss

or damage – it’s quite likely that your drone will be carrying thousands of pounds worth of HD digital camera kit, lighting or other sensors.

What UK law says:UK law states that UAVs over 7kg should not be routinely flown:

• In controlled airspace (for example airports) without the permission of an air traffic control (ATC) unit.

• In any aerodrome traffic zone without ATC permission of ATC or the aerodrome manager.

• At an altitude exceeding 400 ft above the ground.

In visual line of sight operations, UAVs should not be routinely flown at a distance beyond the visual range (BVR) of the remote pilot or observer or a maximum range of 500 metres, whichever is less.

Small UAVs for surveillance should not be routinely flown:

• Over or within 150 metres in any direction of any densely populated areas.

• Within 50 metres of any person, vessel, vehicle or structure, except during take-off or landing.

• Within 30 metres of any persons or objects unless they are under the control (or instruction) of the UAV remote pilot.

What US law says:Part 107 allows UAS operations for many different non-hobby and non-recreational purposes without requiring airworthiness certification exemption, or a Certificate of Flight or Authorization (Personal, Equipment, Operations)

• The new rule, (Part 107) which FAA and its parent, the U.S. Dept. of Transportation, unveiled on June 21, 2016 covers drones weighing less than 55 lbs.

Our recommendationsThere’s a lingering assumption that drones are just harmless gadgets when precisely the opposite is actually true. The risk map is complex, the liabilities significant and the regulatory framework evolving rapidly. That’s why it makes sense to work with a construction and aviation insurance specialist able to design your bespoke drone liability protection from the ground up. We have a proven track record delivering expert drone cover for risk managers. The drone phenomenon is growing fast and is constantly generating new and emerging risks: understanding this evolution is critical to providing supple insurance protection that flexes with rapid change.

If your broker’s understanding of drone risk is leaving you a little underpowered, then come and talk to us.

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ISSUE 7 NOVEMBER 2016

about protecting the drone, but also the expensive equipment it carries, whether in-storage, in-transit or in-flight – and whether your drone is personally-owned, institution-owned or hired-in.

• Public liability: up to £5 million of cover to cover all claims and defence costs, including invasion of privacy protection.

• Higher risk flight paths: includes overflying or proximity to factories, chimneys, bridges, dams, docks or similar. Avoid all areas of restricted airspace.

• It limits UAS operations to altitudes of 400 ft and speeds of 100 mph (87 knots) during the daytime and—with anti-collision lights—at twilight.

Operators also would be required to keep the drones within their visual line of sight.

• Under the rule, the FAA states drones cannot be operated over people, unless they are taking part directly in the flight or under a covered structure or in a covered stationary vehicle.

• Operators must be at least 16 years old, have a remote pilot airman certificate with a small UAS rating or be directly supervised by someone who holds that certificate.

• Those seeking the certificate must pass a written aeronautical test and also undergo a security background check.

Drone operators won’t have to get an FAA airworthiness certification for their devices but must do a preflight check to ensure it is safe.

What are the risk areas for you?‘Dronership’ comes with serious responsibilities. The principle risks are around loss, theft, crash, collision and any subsequent injury or damage to people and/or property. There’s also a risk around the use of personally owned drones being used. It also depends on the application too, and your drone insurance needs to reflect this.

ProcessWe think your right approach to drone risk is two-fold. First is process.

• You should treat drone management with a strong emphasis on Health & Safety.

• Conduct a full risk assessment that codifies how you deploy your drones, when and where you deploy them plus who can fly them.

• Establish clear and CAA-compliant flight rules and ensure all users are aware of - and adhere to – current law.

• Train drone users in a safe environment and ensure their competence. Commercial drone work already requires a Permission for Aerial Work (PFAW) from the CAA and it’s not unreasonable

to assume that a drone pilot licence as a legal requirement will become formalised in the future.

• A UAV is a flying machine with all the dangers that accompany flight so maintain the airworthiness maintenance schedule in line with manufacturer recommendations.

• If you want to operate a drone that you have designed and built in-house, you will need to disclose this fact to your broker and insurer.

• Outside of training, only allow competent remote pilots to fly your drones.

• Make sure you store your drones safely and securely, particularly when conducting fieldwork.

• If someone says ‘can I borrow your drone?’ the safe answer is ‘no’ without the necessary checks and balances in place that protect your institution’s liability.

• Drone use overseas should at all times comply with the UAV rules that apply locally so operators and staff responsibility should always know the restrictions before they fly.

• Identify relevant areas of restricted airspace that may be nearby in advance of flight and always observe the CAA proximity regulations.

ProtectionThen there are the actual insurance policies you need to mitigate drone risk. A sound policy across fixed-wing, rotor wing or lighter-than-air UAVs should cover you for:

• Cyber-attack: the unauthorised taking of control in flight by a third party. You may be surprised to learn that a skilled hacker can do it using a smartphone.

• Loss of data: this could be through crash or collision damage or by failure of the recording or sensor equipment your drone is carrying.

• Multi-pilot cover: chances are you’ll have students and staff flying your drones so it makes sense to combine all pilots on a single policy and that includes drone flight overseas.

• Theft and material damage: it’s not just

1-2 The Economist, 26 September 2015: ‘Welcome to the Drone Age’

3 Wired, 20 February 2014: ‘The legal turbulence hindering drone growth in the UK’ by Mark Piesing

4 The Guardian, 2 April 2014: ‘UK’s first drone conviction will bankrupt me, says Cumbrian man’ by Charles Arthur

John Thompson, Managing Partner, Construction

T: +44 (0)20 7560 3819E: John_Thompson4@alescorms.com

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ALESCO NEWS

Kidnap, ransom and extortion – K&R for short – is a well-established crime but hard data is thin on the ground with perhaps up to 70% of incidents going unreported.1 The total value of ransoms paid today is unknown – but we do know that available figures show:

• There are between 15,000 to 20,000incidents reported each year.2

• An estimated US$1.5 billion was paid outworldwide in 2010.3

• The average ransom demand in 2012 was US$2million.4

The problem is global, affects all levels of society and is endemic across Latin America, Africa, the Middle East, Central and Eastern Europe and Asia. K&R policies provide a level of financial indemnity as well as legal advice and response assistance following kidnap, extortion, detention and hijack or other threats involving the client – whether they are a company employee, contractor, agency operative, volunteer or any other covered person.

Not all K&R policies are equal

Sounds clear-cut on the surface but the opposite is true. The global fight against terrorism and its funding sources is intense and the legislation is constantly evolving with direct, indirect and sanctions legislation affecting the financial response to a kidnap. Apply intricate geographical, political and legal jurisdiction lines that are increasingly blurred and then mix with the complex deployment of multinational teams across global locations and you have a new normal that is tough to navigate.

The bottom line is that wherever you are based or operating as an employer, you have a legal duty to protect those under your care, custody and control. You cannot walk away if known terrorists kidnap an employee and established K&R insurers will argue the same. Although the legislative position is fluid, one thing is crystal clear: policies exclude the reimbursement of illegally paid ransoms demanded by organisations on the UN proscribed list. However, you will still need a policy that responds comprehensively in all ways legally allowed. Not all do.

• Policies must always pass the legal pressure test. It is not always clear who is responsible in a given K&R incident and it can be a legal minefield for the employer to negotiate: could you risk breaching EU, US and/or UN sanctions? Within today’s complex legislative framework, it is critically important that specialist lawyers are involved from the initial stages to ensure full compliance. These costs can be significant especially when using expert international lawyers who must fully understand the legislation and the multi-jurisdictional implications for the client. A well-placed policy with an experienced insurer will cover these costs.

• One might assume the main costs in kidnap situations will be the ransom. Wrong. History shows us that the ransom averages out at just 30% of the overall cost of K&R claims: so even if the situation prevents legal reimbursement of a ransom, a good policy will always continue to give your people strong protection, covering additional expenses such as medical treatment, legal fees, salary costs,

specialist consultancy fees and all related travel expenses.

• While it is clear that ransoms cannot be reimbursed in all cases, they can be - and are - in the vast majority. Historically terrorist organisations are responsible for only a small minority of (usually high profile) instances and it is in these few cases where insurers are restricted from reimbursing a ransom. The majority of ransoms are paid to criminals and reimbursing the payment remains legal.

• In the event of an insured incident, the policy should provide the services of specialist consultants experienced in handling kidnap and extortion situations, irrespective of whether or not they are committed by a UN proscribed organisation. Whether the victim is from a petrochemicals production facility in South America, a construction project in Africa or an NGO in the Middle East, the ultimate result is always the same – a highly emotive situation where a threat is made by an external, often unknown, force. This force, be it an individual, criminal gang or terrorist group is intent on pursuing its own agenda and sees the ‘target’ as a means to an end. The methods and styles of kidnappers vary between countries and therefore the negotiating tactics will also need to differ. The consultants work on your behalf, providing crucial advice and expertise. Their ultimate aim is to secure the victim’s safe and timely release and/or remove the extortion threat, in what could truly be a life and death situation. Again, a sound policy will continue to cover their fees automatically with no upper limit.

KIDNAP, RANSOM & EXTORTION COVER: ARE YOU WASTING YOUR MONEY ON OBSOLETE INSURANCE?

Sources:1 CNBC.com / The multibillion dollar business of ransom / Dina Gusovsky / 7 July 20152 Investodeia.com / A Guide to Kidnap & Ransom Insurance / Amy Bell / 29 June 20153-4 Havocscope.com / Global Black Market Information / Kidnap and Ransom / 2016

Global legislation to combat terrorism never stands still. Has the legal impact on insurers to reimburse a ransom payment nullified the value of a Kidnap, Ransom & Extortion policy? Simon Henderson, Executive Partner at Alesco, reviews the position and the value of such cover.

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However, not all policies are the same and not all insurers have the same level of expertise and understanding when it comes to the complexities surrounding the threat spectrum and cross-border legal compliance. It is essential to choose the right insurer able to respond when expected and that the response team provided has the capabilities in the sector and geographical coverage where you find yourself exposed. Our advice? Don’t use a generalist; use a specialist.

Next generation K&R protection

Insurers are adapting policies to meet the evolving concerns of risk managers and the wider definition of threat. They offer much more protection than before. Today’s employee threats are not always limited to those working overseas and some policies already provide additional security response services alongside core K&R cover.

• They include incidents like: abduction; disappearance; acts of terrorism; assault; bribery; civil commotion or civil war; coup d’état; industrial espionage; malicious damage; riot; political instability; sabotage; stalking; and workplace violence.

• The consultancy response includes assistance with: incident management and communication strategies; crisis communications & PR; legal obligations and liabilities; business continuity support; investigations; security reviews; digital forensics; and litigation support.

Other insurers are providing industry-specific covers that meet the unique risks

faced, providing tailored policies, response services and protection for the associated costs. Different sectors mean different protections: universities and colleges may need extra benefits for acts of violence and assault on campus, emergency student evacuation while travelling or studying overseas, child abduction or sexual assault. Covers for the entertainment industry may also include cyber threats, stalking and violent attacks at a venue where an act is performing.

We’re here to help

Unsurprisingly there’s a spotlight on K&R policies. Additional legislation, the volatility of risk and the threat spectrum faced by corporations and their people means the need for rigorous policies has actually never been greater. Whether it is a traditional policy covering the core benefits of kidnap, extortion, detention or hijack - or one providing additional response or industry specific covers – the benefits are significant, even in circumstances where ransom reimbursement is prohibited by law.

You wouldn’t expect your local doctor to carry out a neurosurgical procedure.

Always employ a specialist insurer to keep your people safe from harm.

Talk to the Alesco Special Risks Team

At Alesco our Special Risks Team handle the risks corporates, organisations and their people face while based or travelling in potentially hazardous areas of the world – whether the danger is occupational, political or simply one of geography. We mitigate human risk with benefits ranging from travel, medical, disability and life covers to K&R, political & natural disaster evacuation and other crisis management packages. We also work with a range of travel, medical and security risk management and assistance companies to provide all necessary additional support, training and ancillary services.

You are in safe hands.

Simon Henderson, Executive Partner, Special Risks

T: +44 (0)20 7208 8529

E: Simon_Henderson@alescorms.com

ISSUE 7 NOVEMBER 2016

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ALESCO NEWS

Can you tell our readers how you/your team improve the Alesco offering?Well we add another expertise string to the construction team’s bow. The exposures in the US are very different to the rest of the world; hence most insurance placements under geographic territory either say “USA and its Territories”, or “Rest of the world excluding the USA”. Consequently the US operates in totally different way from a Casualty perspective and having a dedicated team that understands the nuances of this in relation to the construction industry puts us in a unique position with our offering to US clients or companies with US based operations.

Why are US Casualty Insurance Costs so much more expensive in the US compared to the rest of the world?In the US the majority of insurance costs are driven by the Workers Compensation and General Liability premiums due to the litigious nature of the US populous and the willingness of the US legal system to cultivate a culture of deep pocket reward. The industry professionals in the construction field expect all peripheral advisors, whether from the insurance or finance side, to have a high degree of knowledge and understanding of all aspects affecting their industry. When something goes wrong fingers are pointed and expensive law suits begin.

Do the Retail and Wholesale fields differ much?Interestingly you will find, on the retail side whether brokers or Underwriters, people specialising in Construction are often qualified civil or mechanical engineers. On the domestic wholesale side, as a rule of thumb, they are generalists who mass market based on price rather than coverage. We, on the other hand, work directly with the retail brokers and their clients to tailor every policy to the unique exposures attached to any particular contractor practice policy or project. We always work closely with retail brokers and their clients often meeting and discussing their requirements with the owners and contractors directly. We do rarely work with domestic wholesale brokers where the natural mode of operation is to blanket the market for the cheapest price irrespective of the requirements and exposures of the projects. We occasionally also find we have a much higher hit ratio when we have direct contact. To that end we are the only focussed, specialist US liability Construction broking team in the London Market, sitting with our global construction team in Alesco.

Tell us about your client base?Our clients are spread nationally across the US and range in size from the very large national construction firms with revenues in the billions to the small local artisan contractors, being one or two employees, including plumbers, electricians, drywall and roofing contractors to name but a few. We do also have a number of

developers for whom we work in conjunction with their appointed contractors. At the end of the day though the exciting thing about this industry is that the size of the client is not necessarily as important as the actual project, or the nature of the area in which the project is taking place. For example you can have a desalination plant being built on the coast to a large tower or multiple towers being built on Manhattan. Your next project could then be a transportation system being built over open fields or underground in the middle of a large city. The variety of work never ceases to amaze me, which is why it is such an exciting industry to be involved in. Nothing is deemed to be impossible both in engineering complexity terms and for us managing the structure of some fairly complex and specialist placements with our markets. There is really nothing standard about any of the placements we get involved in.

And what types of insurance risks do you cover? In short we place third party liability insurance. These can be driven by the more direct exposures of causing injury to individuals or groups of people or third party property damage in the course of managing and working at a project site. For example you could have damage caused by flooding to third party buildings when a contractor digging foundations gets too close to a retaining wall near a river, or a crane toppling over whilst lifting girders for a new bridge into place. You can also have the hidden liabilities associated with projects, for example the contractual indemnities required by the various parties that can also give rise to liabilities that could heavily affect the ability of your client to work and complete a project.

To that end we bring the flexibility of our combined London, European and Bermuda markets to play on the very technical and difficult projects that are outside the run of mill projects the US domestic market concentrates on and can handle day in and out. Our markets have a “can do” attitude.

Knowing what matters to our clients is key to Alesco - what approach do you take to finding the right solution for a client? Interestingly one of the best ways of providing the best solution we can for our clients is knowledge of our markets and direct communication and understanding of the exposures involved. For the most part we work very closely with specialist retail brokers and their clients directly, including frequent face-to-face meetings. This also then translates to face to face broking (sometimes involving the clients as well) of the risks with the underwriters and supporting markets to ensure all understand the technical nuances of the placements.

In the latest in our series of interviews with our newly expanded teams, Alesco CEO Simon Matson interviews Mark Watson, from our Construction Liability team.

AN INTERVIEW WITH…

Upstream $829 million

In our mid-year update in June we reported that the loss activity for the first 5 months of the year had been relatively low with only 6 reported claims over the $10 million mark. This has more than tripled to end of August with 21 claims now being reported in excess of $10 million, including two new reported claims in excess of $150 million. The two new significant claim notifications above $150 million were a fire and explosion to a semi-submersible rig in the Bay of Campeche ($150 million) and the previously reported Stena Drilling loss, which involved equipment being dropped to the sea bed off the coast of Nova Scotia during severe weather ($178.5 million).

One significant loss which insurers have been put on notice for is in respect of Tullow Oil’s FPSO located at its flagship Jubilee field off the coast of Ghana. There has been an issue with the turret bearing

which has resulted in revised operating procedures and a reduced level of production since February. A longer term solution has been announced by Tullow which would see the FPSO converted to a permanently spread moored facility, with work likely to take place at the start of 2017. There is however some uncertainty around the market as to what the final bill to insurers will be with current estimates of the loss of production costs in 100% terms around the $1bn mark.

Power$780 million

As we noted back in June, total losses in the power market are dominated by one significant loss, a fire at a Power station in Siberia ($536 million). The frequency of losses has increased in the last 3 months, however the majority of claims have been attritional in nature with claims in the $1-10 million bracket increasing from 6 to 18.

Downstream$411 million

Moving on 3 months from our previous update at the end of May and the downstream losses have increased to $411 million from $210 million. This is due to an increase in claims notifications in the $10-50 million range from 2 to 8.

As we have previously reported and which is not reflected in the above figures, is the explosion at a Mexican Vinyl Chloride plant which occurred in April resulting in 32 fatalities and significant damages to the plant. Access to the site has been restricted which has hampered the ability of adjustors and insurers to set an estimate, however the loss is believed to be significant from both a property damage and business interruption perspective.

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ISSUE 6 JUNE 2016ISSUE 7 NOVEMBER 2016

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Downstream172,350,000

Grand Total

$311,689,760

Power96,900,000

Upstream42,439,760

55% 31% 14%

30%

Downstream31,300,000

Grand Total

$573,394,000

Power536,144,000

Upstream5,950,000

94% 1%

55%

Downstream

Grand Total

$58,000,000

Power3,000,000

Upstream55,000,000

0% 5% 95%

5%

Downstream

Grand Total

$82,000,000

Power

Upstream82,000,000

0% 0% 100%

8%

Downstream7,300,000

Grand Total

$25,140,000

Power7,540,000

Upstream10,300,000

29% 30% 41%

2%

5%

NORTH AMERICA

EUROPE

MIDDLE EAST

ASIA PACIFICSOUTH & CENTRAL AMERICA

LOSS UPDATE Author: Ronan Barrett

Alesco Risk Management Services

67 Lombard Street London EC3V 9LJ

T: +44 (0)20 7204 8999

WWW.ALESCORMS.COM

twitter.com/AlescoRMS

linkedin.com/company/ alesco-risk-management- services

FOCUS ON ASIA

Alesco is a trading name of Alesco Risk Management Services Limited. Alesco Risk Management Services Limited is an appointed representative of Arthur J. Gallagher (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 1193013. www.alescorms.com

Alesco cannot be held liable for any errors, omissions or inaccuracies contained within the document. The opinions and views expressed in the above article are those of the author only and are for guidance purposes only. The authors disclaim any liability for reliance upon those opinions and would encourage readers to rely upon more than one source before making a decision based on the information.

SIMON MATSON T: +44 (0)20 7204 1814 E: simon_matson@alescorms.com

JOHN THOMPSON T: +44 (0)20 7560 3819 E: john_thompson4@alescorms.com

RONAN BARRETT T: +44 (0)20 7560 3084 E: ronan_barrett@alescorms.com

MARK WATSON T: +44 (0)20 7234 4136 E: mark_watson@alescorms.com

SIMON HENDERSON T: +44 (0)20 7208 8529 E: simon_henderson@alescorms.com

PHYLLIS XIE T: +65 6422 7435 E: phyllis_xie@ajg.com

CONTACTS

Capacity and underwriting attitude

Despite the continuous decrease on the demand side due to the reduction of risk management budgets of energy clients, there still has not been any meaningful withdrawals of market capacities (across upstream, downstream and also energy construction), both on a global basis and in the regional market in Asia. We have however observed some interesting developments in both capacity and underwriting attitude that are worth noting:

• Recent Asian investment into the upstream insurance markets has been conducted with a view to taking a more dominant position in this sector. We have already seen evidence of this with one recent tender of a flagship upstream account in the region won by a regional underwriter offering both competitive lead terms and good capacity.

• Major players that have undergone M&A restructuring are eager to fly the flag for their new brand, providing lead terms for some major tenders instead of putting down their capacity as a following market.

• Some markets have decided to adjust their underwriting attitudes to become more prudent and ‘selective’, for example we have recently seen one market withdraw from refining business.

• There has also been the withdrawal of some operations from the region by international companies, which has been driven more by the need for strategic restructure from a corporate level than from a real capacity withdrawal.

• In general, there has also been some shift in the way in which the market underwrite in Singapore under the softening market conditions with a number of large accounts that had been underwritten by regional underwriters now being referred back to London for joint approval.

Rate and premium trends

A significant percentage of the premium income pool in upstream energy market has evaporated over the past 12 months due to the significant slowdown of E&P activities. Cost cutting exercises and a focus on the bottom line by E&P companies has led to a number of risk managers putting their insurance program out to tender in

order to get more competitive deals. For upstream programs that are tendered on regular basis, we have observed huge reductions of up to 40%. Normal renewals have also been following a similar trend of pricing reductions. It would appear that the deteriorating loss record worldwide has thus far not been significant enough to change the regional upstream underwriter’s attitude to premium reductions.

While on the downstream side, the effect of this year’s increase in capacity has driven markets to offer greater price reductions as opposed to buyers choosing to increase policy limits. We have noticed an increased demand for lower deductibles by buyers, especially shorter waiting times for Business Interruption. These soft market conditions have put further pressure on underwriters resulting in the level of price reductions which we are now seeing in a range between 15%-30%, dependent upon terms & conditions as well as loss record. Risk engineering and risk qualification have become more important for the underwriter to make underwriting decisions.

Interestingly, while both the upstream and downstream regional markets have supported placements with huge premium reductions and competitive rates this year, they have in general taken very prudent views on supporting further price reductions in the next renewals. Also, we have noted that the Asian regional markets are sometimes not as aggressive as some of the London and Middle East markets from whom even more competitive prices have been offered to similar risks. The regional markets hence tend to emphasize more and more on their better understanding, long term relationships and close interactions with their clients.

New opportunities

Despite the slow recovery of the global energy market we are seeing some new regional opportunities, mainly energy related construction projects, from territories such as China (following their One Belt One Road strategy), Indonesia, Malaysia and Myanmar. We have also observed that the markets are that are hungry for such new business are becoming very aggressive, with rates on some new construction projects far lower than normal expected; however the placements are still being completed without any difficulty.

Phyllis Xie, divisional director for energy based in Singapore, comments on the state of the energy and construction insurance markets in Asia.