Barents Re Energy underwriting team is based in London and is focused on providing re/insurance capacity for Energy risks worldwide, excluding those based in the USA. We avoid risks downstream of refining and related risks such as power, fertilizer, and methanol. Our capacity is composite and responds to both upstream and downstream, separately or as a package.
We apply a sophisticated approach that goes beyond just premium rates. We embrace the unique nature of each risk and appropriate retention levels, breadth of cover, terms, and conditions, and wording amendments. Such a forensic approach, which has served us well, not only gives comfort to the decision process but elevates the experience of all team members.
Our trading environment for 2021 was positive for downstream and upstream risks in different ways.
The upstream market continued to be weak, with rate rises of 2.5% to 5% being the norm. Technical loss ratios continued to be good on upstream risks, but there was no pressure on premium rates. Underwriting and pricing discipline remains within leadership circles with respected companies/syndicates who are seeing little threat from new markets, reflecting the holistic view of management and the need to maintain the profitability of their portfolios.
Pressure in the upstream market was exacerbated by a lack of confidence in oil prices. This has reduced project activity, resulting in more modest drilling campaigns and a lack of activity within contractor fleets. As a result, revenues are down, and consequently, the policy adjustments result in negative rather than positive premium flows.
The downstream market continued to see rate increases but not to the same extent as in prior years as pressure eases. The rate increases at the start of 2021 were around 10%; by the end of the year, they were 2.5% to flat renewals on clean business. We continue to provide support to brokers as we look to capitalize on a favorable market environment. Since the hardening of the downstream market, increased retentions and decreasing coverage adopted by clients remain mostly in place.
As we look towards 2022, Barents Re is strongly positioned to leverage its capacity deployment across the spectrum of Energy re/insurance activity as a composite capacity provider, with the market gears spinning at very different speeds. The ‘subscription market’ has long since collapsed in the downstream sector, and the upstream market is beginning to default to differential terms. Electronic re/insurance placement is here to stay and will accelerate this process. Our Energy underwriting team is well qualified to navigate these challenging waters and continue to provide positive results.
Barents Re remains well-positioned with core relationships spread through all the Energy brokers. Although a substantial part of our income is generated by the “big three”, we continue to source opportunities from brokers of all sizes.