QBE European Operations plc

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QBE European Operations plc Annual report 2011 14 Marine, Energy and Aviation “The division’s historically strong underwriting discipline, expertise and service enabled us to deliver an underwriting profit in extremely competitive market conditions.” Colin O’Farrell Chief Underwriting Officer Marine, Energy and Aviation Division, Joint Active Underwriter QBE Syndicate 2999 Divisional overview The Marine, Energy and Aviation Division comprises Marine and Energy Syndicate 1036, British Marine and Aviation Syndicate 5555. Syndicate 1036, a direct marine and energy syndicate that operates in the Lloyd’s insurance market, specialises in hull, energy, liability, specie, cargo, ports, war, political risks, political violence and associated risks. Its product distribution is increased through our wholly owned US underwriting agency, Burnett & Co Inc. and through local participation in the Lloyd’s Asia market in Singapore. British Marine specialises in writing protection and indemnity (P&I) for smaller vessels and 100% hull risks. Since January 2010, its management has been integrated with that of Syndicate 1036. Syndicate 5555 is a dedicated specialist aviation syndicate at Lloyd’s. It writes all elements of general aviation, airline operations, products and airport business. It became part of the division on 1 December 2010. Product range Marine Marine comprises the cargo, specie, hull and war, ports and liability underwriting portfolios. • Cargo consists of a high-quality portfolio of international business; the team is recognised as a leader in high-tech, pharmaceutical and manufactured goods and excess stock. • Specie writes risks worldwide and specialises in areas such as armoured car, general specie, fine art, jewellers’ block and financial institutions. • The hull and war portfolios comprise blue water hulls, mortgagees’ interests, shipbuilders and war risks, written worldwide. • Port writes cover for ports and terminals, intermodal transport and marine professionals’ liabilities. • Liability operates across the global marine and energy liability markets. The portfolio comprises pure marine risks, such as P&I, pollution and charterers; and energy liabilities both offshore and onshore. Energy and Political Energy and Political comprises the offshore and onshore energy portfolios, together with the political risk and violence underwriting portfolios. Offshore energy is the division’s largest individual portfolio. It is written worldwide, from dedicated upstream entities to fully integrated energy companies. The portfolio specialises in offshore cover for assets located in the North Sea and the Far East, particularly China. Approximately 60% of business is written in a lead capacity. The onshore team writes a wide range of risks, worldwide, for oil and gas companies’ onshore assets, from wellheads to refineries and petro-chemical plants, particularly in the Middle East and Indonesia. Approximately 75% of the account is written in a lead capacity. The political risk and terrorism team writes a broad-based portfolio of risks, worldwide. The portfolio complements existing risk classes written by the division, particularly onshore energy, cargo and specie. Gross written premium £644m same as last year Combined operating ratio 2011 2010 Marine, Energy and Aviation portfolio mix Net earned premium for the year ended 31 December 2011 ● Marine 27.6% ● British Marine 23.5% ● Energy and Political 27.8% ● General Aviation 9.6% ● Airlines 5.1% ● Products and Airports 6.4% 98.2% 98.2% 87.0%
QBE European Operations plc Annual report 2011 15 Underwriting structure With 2011 GWP Marine, Energy and Aviation Colin O’Farrell £644 million Sam Harrison Director of Underwriting £531 million Paul Letherbarrow* Director of Underwriting (Aviation) £113 million Marine Tim Pembroke £152 million British Marine Tim Harris £115 million Energy and Political Peter Burton £264 million The underwriting structure is supported by Nick Menear (Operations), Gary Crowley (Claims) and Daryl Ewer (Business Development). * Joined April 2012 Business operations British Marine Cover includes P&I risks, written on a worldwide basis, for smaller, specialist vessels and yachts that typically do not exceed 10,000 gross tons. Premium cover includes protection for cargo, pollution, collision and personal injury. The portfolio also includes a dedicated hull underwriting team that specialises in offering cover for hull and machinery, increased value and war risks, which are routinely written for 100% of a vessel’s value up to US$20 million. Approximately 10% of the hull portfolio relates to the insurance of commercial fishing vessels, predominately in the UK, Ireland and Canada. General Aviation The GA team leads more than 40% of the risks it writes. Clients include the private owners of fixed-wing and rotor-wing aircraft, flying clubs and all types of commercial operations. Although the portfolio is international, the majority of business comes from Europe and Asia and is written through London-based brokers. Income is also generated through branch offices in mainland Europe, Mexico and the USA, where we provide products through local market agents and brokers. Airlines Airline risks are written, through brokers, on a co-insurance basis in the international subscription market. The syndicate has the capacity to underwrite all classes of airline business worldwide, from international, national and regional carriers, to charter and cargo airlines. Products and Airports The Products and Airports portfolio consists of an international book written predominantly through London-based insurance brokers. Business is spread over all sectors, including airframe engine and component manufacturers, airport and airport-related servicing risks and refuelling operations. Financial performance The division’s trading environment was mixed in 2011, with average rate increases of 4.8% (2010 2.1%). Significant rate increases were observed during 2011 on renewal of energy impacted classes of business, particularly worldwide energy clients. Rates in the marine, British Marine and aviation markets remained relatively flat during the year. Gross written premium remained stable at £644 million. Underpinning this performance were prior-year reserve releases from QBE Syndicate 1036 of £10.9 million. This includes a 2011 reserve release, reflecting a benign hurricane season for catastrophe exposed risk business in the US Gulf. Market environment The market environment was extremely competitive across all marine, energy and aviation product lines. While rates in the onshore and offshore energy risk and liability sectors increased following market losses in the former and contraction in capacity in energy liability, there was little or no rating progress in other classes, in which overcapacity and commission levels became increasingly significant issues. The market rating environment across all classes was particularly disappointing, despite the increased level of catastrophe claims throughout the 2011 calendar year. Outlook We assume that pressure on rates will increase in 2012 unless capacity or market participants contract following the high level of catastrophe claims in 2011. The division’s historically strong underwriting discipline, expertise and service will be the key to profitability in 2012. Consolidation and expansion of managed operations overseas, combined with co-operation with QBE European and Group offices worldwide, will become increasingly important as the year progresses.
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