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PCS: Market sees hurricane Laura offshore energy loss at up to $250m

8th September 2020 - Author: Steve Evans

Hurricane Laura’s impacts to the offshore energy insurance and reinsurance market may be lower than anticipated, as Property Claim Services (PCS) explained to us that that the market sees the offshore loss from the hurricane at up to $250 million.

offshore-energyCatastrophe risk modeller RMS said last week that it expects between $1 billion to $2 billion of industry insured losses from hurricane Laura’s impacts to offshore platforms, rigs, and pipelines in the Gulf of Mexico, due to wind and wave-driven damages.

We spoke with Property Claim Services, a Verisk Analytics business that provides industry loss estimates on property, catastrophe and specialty lines, with the offshore market covered by its PCS Global Marine and Energy loss aggregation and reporting service.

That service launched as a non-elemental property loss data and estimate offering, covering the kind of large property losses in energy and marine industries that can impact insurance and reinsurance markets.

PCS is now looking into adding elemental loss event coverage to its PCS Global Marine and Energy service, so to begin reporting on natural catastrophe and weather event impacts to energy and marine insurance lines, and so spoke to us on the impacts of hurricane Laura.

Tom Johansmeyer, head of PCS, explained to us that hurricane Laura may not turn into the offshore loss the risk modellers are suggesting.

“Our initial talks with the market suggest that the offshore energy loss for Hurricane Laura seems unlikely to reach US$250 million. Of course, it’s still early days. That said, the decline in insurance for the energy sector in the Gulf of Mexico over the past decade has reset for re/insurers what constitutes a ‘large’ loss for the area. Elemental Gulf of Mexico remains a concern for risk bearers in the region, particularly when there are both onshore and offshore losses involved. The contributions of offshore insured losses to the total onshore and offshore industry loss amount, however, seem to be smaller than they were a decade ago,” Johansmeyer said.

He continued, “From what we’ve heard so far, something over US$250 million seems like a stretch. As we’re not yet reporting elemental marine and energy, our views on offshore losses from Hurricane Laura are just based on a series of client conversations and aren’t going to be included in any existing PCS loss report.

“We are taking a look at adding elemental marine and energy to the PCS Global Marine and Energy loss platform, and when we more forward with that sort of reporting, we may add an entry for Hurricane Laura to that platform. However, it won’t show up at all on the bulletin for the onshore catastrophe loss estimate in the United States. The market needs to be clear on that.”

An industry loss estimate and index for offshore elemental energy market losses would be particularly useful in the Gulf of Mexico, providing another way for underwriters of offshore insurance and reinsurance to hedge their books.

In particular, an elemental ILW for offshore energy industry losses could be transacted on the basis of this service, which many specialty underwriters might find an appealing way to secure last minute, live cat type capacity when a storm is threatening the Gulf region.

Johansmeyer went on to explain why energy and marine is important in the Gulf of Mexico, “Even though Hurricane Laura’s offshore insured loss seems to be low so far, that doesn’t mean re/insurers should take their collective eye off the Gulf of Mexico. There’s still enough catastrophe activity and potential for insured loss to make the region highly relevant, and the need to gain access to alternative risk transfer resources for Gulf of Mexico elemental marine and energy persists. Even if it’s not energy with Hurricane Laura, future tropical storms could cause losses to both energy and marine assets, with yachts a particular concern.

“PCS is currently in the process of reviewing historical elemental Gulf of Mexico insured loss events in order to expand the coverage of the PCS Global Marine and Energy platform.”

On the potential for expanding its marine and energy offering to include elemental risk events, Johansmeyer said that covering nonelemental marine and energy worldwide, the expansion would fill a crucial gap in the global re/insurance and ILS community’s analytical and alternative risk transfer capabilities.

“We’re still taking a look at geographic scope, reporting thresholds, and how we’d integrate and categorize elemental Gulf of Mexico in the PCS Global Marine and Energy platform. We’re optimistic that we’ll have something for elemental Gulf of Mexico in the next couple of months, but if someone has an urgent trading need, we could probably accelerate the product launch. North Sea and the rest of the world may take a bit longer, but they’re on our radar as well,” he explained.

PCS launched its Global Marine and Energy service in 2017. In 2019 the company made the service offering even more granular by breaking down reporting by class of business, as physical damage, business interruption, liability, and cargo.

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