Abstract

It has long been conceded by international insurance markets that across all classes of cover Australia historically represents between 1% and 2% of total premium—but accounts for between 3% and 4% of losses. Until recently this was also the perception in energy insurance, and while Australia might not have been making large amounts of money for international insurers the anomaly was not great enough to force underwriters to sit up and take notice as they had, for example, in the Gulf of Mexico. This has now all changed. In addition to the normal attritional losses the market has come to expect, a general run of international losses and recent high-profile Australian claims such as the Varanus Island fire—in itself likely to be one of the largest energy losses globally in 2008—have come to the attention of underwriters. There is now a serious re-thinking of the energy insurance sector’s positions both internationally and on Australian business in particular. The specific situation in energy is complicated by the drag along effect of severe Australian losses in the broader mining and resource arena. The September–October 2008 edition of the influential Inside Fac publication—a widely read journal for insurers and reinsurers—listed a total of US$3.5 billion in mining claims for the first half of 2008, of which US$1.96 billion (56%) occurred in Australia and a further US$400 million (11%) arose from international operations of Australian companies placed within Australian-based insurance programs. The issue for the Australian energy sector is that the same global underwriters who take on the petroleum business are also key players in the mining arena, and the markets are therefore closely linked. This presentation will focus on the impact that conditions, together with other factors, will have as well as explaining what it will likely mean for Australian exploration and production (E&P) companies. It will highlight how they can best position themselves for the new insurance reality they are about to confront.

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