PCS adds Gulf of Mexico elemental marine & energy losses, targets global coverage

Property Claim Services (PCS), a Verisk Analytics business, has now officially launched coverage of Gulf of Mexico elemental insurance industry loss events to its PCS Global Marine & Energy service.

The launch is seen as the first step on the road towards global elemental loss event coverage for both marine and energy industry events, with other key seas and oceans to be added in 2021.

As we explained last month, in response to market discussions and recent hurricane activity in the Gulf of Mexico, PCS had begun exploring adding coverage of elemental loss events to its PCS Global Marine & Energy service.

The company has quickly turned this around, launching the inclusion of elemental loss event coverage to the service today.

PCS had launched the Marine & Energy service in 2017, to provide the insurance and reinsurance industry with non-elemental industry loss estimates for the global marine and energy insurance and reinsurance sector, as well as historical data and a risk-transfer index to facilitate hedging transactions such as industry loss warranty’s (ILW’s).

The service was used within months, with a marine and energy industry loss warranty (ILW) transaction traded using the PCS Global Marine and Energy non-elemental industry loss index service, and reinsurance linked investment manager Twelve Capital providing the capacity to back the deal.

PCS then enhanced the Marine and Energy service in 2019, offering to break down estimates for non-elemental marine and energy industry insured loss events by line of business.

Now, having added elemental loss reporting for the Gulf of Mexico, PCS will report on events with industry insured loss estimates of at least US $250 million.

These additions will be identified as “elemental” in the PCS Global Marine and Energy platform database, so as to avoid from disrupting any non-elemental risk-transfer transactions currently placed in the market, the company said.

The ambition is to gain global coverage for regions where marine and energy exposures have elemental exposure in the insurance industry.

As a result, PCS said, “The inclusion of elemental Gulf of Mexico losses represents PCS Global Marine and Energy’s first step toward global coverage for elemental marine and energy loss events, with the North Sea and rest of world coming by the first quarter of 2021.”

The timing of this launch is relevant, as the Gulf of Mexico has seen hurricane activity in recent weeks, including last weeks hurricane Delta.

Tom Johansmeyer, head of PCS, explained to us, “The Gulf of Mexico has some unique challenges for the global insurance and reinsurance industry. There’s enough insured risk to be of concerns to our industry, but the total is smaller than it used to be. That’s why we’ve set our designation threshold so low. It needs to be US$250 million to capture relevant events.

“The recent set of hurricanes that formed in the Gulf of Mexico shows that, sometimes, there isn’t enough time for risk mitigation activity. We heard a lot about that from the market as Hurricane Delta formed. If there isn’t time to move platforms and vessels out of the storm’s path, there’s a greater risk of impact up and down the risk and capital supply chain.”

Demonstrating the impact potential from Gulf of Mexico hurricanes, CoreLogic has said that it estimates Delta caused at least $800 million of damage to offshore structures.

While that may prove high (sources suggest) once the impacts of the recent hurricane are better understood, it demonstrates the exposure in the Gulf and the need for robust risk transfer solutions.

The insurance-linked securities (ILS) market has long backed offshore energy industry loss transactions and also parametric structures. The availability of both non-elemental and elemental loss event reporting from PCS can only help to stimulate further risk trading activity focused on key offshore marketplaces.

Commenting on today’s launch, Ted Gregory, director of global PCS operations, noted, “Our clients have been eager to see this expansion, as evidenced by their continued and tireless support. We enjoy a high level of collaboration as a result of our strict focus on solutions that help the market with specific industry loss-related problems.” Gregory adds, “We’re moving deliberately into elemental marine and energy coverage. For all new PCS product launches —both catastrophe and non-catastrophe —we’ve included extensive historical loss databases. We’ve completed that for the Gulf of Mexico and are working our way through the North Sea now.”

Alex Mican, senior PCS product development director, further explained, “There’s no substitute for a historical loss database. We like to go through that process as a way to test and validate our capabilities. That’s what helps drive such rapid adoption of our new platforms. We can go to our clients and show them that we can put credible estimates together. It significantly reduces the uncertainty that usually comes with new product adoption. And with data going back to 1992 for elemental losses, we’re happy with the amount of context we’re able to provide our clients.”

Johansmeyer highlighted the continued expansion of PCS’ specialty lines focused offerings, saying, “Independent industry insured loss estimates are crucial to the basic operations of the insurance industry. In the past, there was a sense that loss reporting made more sense for catastrophe than specialty, because of the scope of insureds affected. We learned early in the process of developing PCS Global Marine and Energy that single risks and small events aren’t as straightforward as they might seem. Different perspectives, varied interpretations of available facts, and the interests of the risk-bearer all seem to factor into views of industry loss. With our latest expansion to PCS Global Marine and Energy, we look forward to helping our clients further improve their understanding of marine and energy risk.”

Elemental Gulf of Mexico historical insured loss events and any new events will be available in PCS Global Marine and Energy from November 1st 2020 and the company said that the updated platform can already support risk transfer tractions.