LSM’s Bolaños: Energy rates will “positively adjust” to alleviate “drought of capacity”

Several insurers are rethinking their position in the energy space owing to challenges in the sector, but Liberty Specialty Markets’ Ronald Bolaños has told The Insurer TV he expects rates to “adjust positively” while also reaffirming the carrier’s commitment to the class.

As losses continue to rise above premiums in the energy market, carriers are increasingly weighing up their options.

“In terms of energy, the premium that the overall sector generates worldwide has not been enough to cover the losses that the sector has had," said Bolaños, who serves as president, LSM West and global head of energy.

“And there has been a trend in the last couple of years that we see more and more losses for different factors. And that makes the companies rethink their position about energy.”

The losses are due to a number of factors that can be difficult for insurers to evaluate, including high capital expenditure requirements, extreme volatility, overexposure to natural perils, and high standards for mechanical integrity and operative skills.

These and other issues have contributed to the trend of capacity exiting the sector, but they have also driven an increase in rate that Bolaños expects will continue.

“Are rates going to continue to see an adjustment? The short answer is yes,” he affirmed.

“When you drill down to the different parts of the energy sector, the behaviour is different. By nature, it is the complexity of the different occupancies. But overall, you will still see an adjustment of rate on the positive side,” he said.

“When it comes to withdrawing more capacity, it goes back to the strategy. Yes, I think that some companies are highly considering if they need to continue on this one and if they have the proper set of skills that are needed in order to service the market,” he added.

But Bolaños emphasised that LSM remains committed to the energy sector.

“Energy is very important for us. We have been servicing that sector for more than 20 years. We are [here] for the medium and long term. As we evolve into this journey, we are adapting ourselves to the new challenges that it presents.”

Those challenges include dealing with ESG concerns, with activists sometimes complaining that insurers aren’t doing enough to exit their involvement with fossil fuel and mining projects. At the same time, insurers have come under fire from politicians over their approach to ESG-centric policies.

Other issues include the sector’s sensitivity to business interruption.

“With the decarbonisation and the increase of renewables, we are also seeing some secondary perils like hail [and] severe convective storms,” said Bolaños.

“All of that plays into the equation. Those are challenges that we knew were there, but not at that volume of risk where we could not live with them.”

Despite those issues, energy is a key driver of the global economy, and with that comes opportunity, according to Bolaños.

“There's all of these needs from a client perspective to mitigate the exposure and the risks that they have, and it opens the doors for a lot of the product offerings that we have.”

To take advantage of those opportunities, Bolaños emphasised LSM’s commitment to being risk engineering driven when selecting risk and mitigating losses, and employing a holistic approach to its business, incorporating key tools like actuarial support and exposure management experts.

“When we like a risk, we go for it,” said Bolaños.

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