Now! - Asia Offshore Energy Conference
Deepwater Oil & Gas
- Risk Transfer The Challenges and Opportunities
By Paul O’Keefe, Executive Director, Aon Global Energy
Bali, Indonesia 30th September 2010
Energy Market Update
Capacity at a 10 year high
Opportunistic capital returning
Lack of natural catastrophe losses
2009 global energy premium US$ 5 billion / losses US$ 3.75 billion
Market “response” to Deepwater Horizon
More purchase of BI coverage resulting from pollution
Increased liability limits purchased (voluntary and / or statutory)
Pressure on OEE rates and limits
Increased reinsurance costs?
Reduction in affordable XOL reinsurance
Some withdrawal of quota share capacity
Stricter reinsurance security requirements
New capacity attracted by hardening rates
Closely watching outcomes GoM hurricane season 1 June – 30
Tropical Storm Risk predicts a 92% - 97% probability that activity
will be in the top one-third of years historically
Source: Aon Energy / Global Reinsurance June 29, 2009 / Wall Street Journal May 2010 / Credit
Suisse Research Note May 2010 . TSR Forecast July 2010
Key Point No.1
More volatile market – need for a risk
approach to differentiate risks
What does an Underwriter Not want to Provide!?
Cover for Normal Operational Risks / Business Risks
Cover for Consequential Losses
Cover for inevitable incidents
Underwriting technology development
Deep water developments are perceived by Underwriters
to push the boundaries of technology and the
capabilities of the industry…
Technology - Barriers to Change!
• Maturity of technology ?
• Demonstration of reliability ?
• Sufficient priority and focus ?
• Business risk ?
• Mental barriers – perceptions ?
Key Point No.2
Common aspects of a deepwater risk
– Manufacture – greater QA/QC needs
– Economics = All subsea development
with Greater tie back lengths to shore
– Subsea Processing
Offshore – subsea to shore concept
Storegga slide edge
and MEG lines
2x30" multiphase lines
Pipeline End Termination (PLET)
Key Point No.3
Repair Capability in Deepwater:
• Pipeline Repair tool
• Well Cap tool development
• Anchoring systems
• Riser production
Key Point No.4
Well Control Insurance & Increased
• Needs to be an annualised approach
– marked change, limits available
Key Point No.5
Drive towards specialist liability
Increasing government financial
– OPOL increased to US$250million a.o.a.o.
– US looking at US$10billion?
OPOL – Increase Limits
Key Points No.6
• CAR memories blighted by rising
• CAR – good loss history in Deepwater
• Question the Justification of rate rises?
IHS CERA UCCI
0.2 Percent Increase in First Quarter 2010
Source: IHS CERA.
Recent Loss Situation (Offshore Construction)
Damage to risers
Malaysia / Thailand
Mooring shackle damage
$60m (res. $164m)
Subsea tree damage
Mooring shackle damage
South China Sea
Are rate rises justified?
• The recent losses were operational losses, not
• CAR insurers increased rates and reduced
coverage in 2008/2009 following a poor
construction loss record in 2008. There is no
justification for a further increase
• In 2008/2009 operational insurers did not
increase operational rates as a consequence of
the construction losses.
• Competition remains strong with increases in
capacity from a number of new entrants and a
wider choice of leaders.
Deep Water - Conclusions
Need for a risk approach to differentiate risks
Greater QA/QC needs for manufacture
Potential for significant tie back lengths to shore
Driver for Subsea Processing
Repair Capability in Deepwater is part proven
Increased cover for COW and associated pollution clean up needs a
Liability insurance market growth with increasing government financial
guarantee funds and drive towards specialist underwriting
There is no justification for an increase in CAR rates, particularly for
– CAR memories were blighted by rising CAPEX costs
– CAR risks have a good loss history in Deepwater