Analysts at Risk Placement Services (RPS) have described the effects on the energy insurance sector following the OPEC+ meeting in early October, where it agreed to a cut in oil production 2 million barrels per day (BPD).
RPS notes that the decision was made due to many factors, although one thing is clear is that OPEC+ is looking to support oil prices around $90 a barrel and are reluctant to let prices fall further. than that, regardless of the economic headwinds.
RPS writes: “It is important to note that we are not actually going to see 2 million barrels disconnect; the actual number is actually around 890,000 barrels. This difference is due to OPEC+ countries committing to a certain level of production, and since the pandemic many countries have been unable to meet their assigned allocation of this production.
“In fact, the group as a whole missed almost 3.6 million BPD. Many OPEC+ members believe that the current price of oil does not accurately reflect the oil shortage and this cut was intended to wake the world up to that fact.
“To be fair, OPEC+ is not wrong. In 2023, many factors will continue to weigh on prices. Russia is a member of OPEC+, and currently it is pumping just below 10 million BPD, but it is feared that it will maintain this production.
“Many of their shale fields are very complicated and have required the expertise of Western companies who are now pulling out of the country due to the conflict with Ukraine. We know that shale wells have a shorter lifespan and need to be replaced quickly, so it will be interesting to watch the development. It will also be interesting to watch the potential actions of the American and European leaders.”
As for the impact, RPS indicates that the energy insurance market continues to offer competitive solutions to policyholders. He notes that he saw changes in appetite from carriers in late 2021 and early 2022, and for the most part the space has adjusted and found some consistency.
The company also observes that it continues to see carriers leverage core umbrellas to win contracts. He adds that carriers are increasingly comfortable with increasing their limits to stay on accounts, with several carriers having rolled out limits of up to $20 million.
RPS says this trend indicates that they have been able to negotiate and find reinsurance capacity to help support these businesses.
Additionally, the company suggests that it sees carriers taking advantage of the workers’ compensation line of coverage, as this line of business has historically been profitable, and carriers are increasingly pressuring carriers. agents to group this line to quote umbrellas.
Meanwhile, RPS notes that underwriters continue to diligently underwrite the auto liability and auto leased and non-owned lines of business if they are in excess of a fleet. He adds that he sees more applications for auto liability surcharges to fill out, in addition to general liability surcharges.
RPS concludes: “We have continued to monitor pressure on insurance companies to exit the oil and gas space. Munich Re announced on October 6 that it would refuse to insure any contract or project covering exclusively the financing, planning, construction or operation of oil and gas fields, intermediate infrastructures or oil-fired power plants, from April 2023.
“Munich Re is one of the largest reinsurance companies, so it will be interesting to watch the effects of this decision over time and see if other companies join.”
As RPS waits to see the full effects of the OPEC+ decision on the U.S. energy industry and, therefore, the energy insurance market, he writes that he is keeping an eye on finding solutions. to help agents and policyholders navigate uncertainty.
