Canadian Underwriter

How much property coverage capacity Canada’s oil sands has lost

June 15, 2021   by Greg Meckbach

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The withdrawal of “hundreds of millions” of capacity for property risks related to Canada’s oil sands is creating a new challenge for brokers trying to place insurance for oil and gas clients, a broker executive reports.

Some insurers have taken positions that they will no longer write insurance for a corporation if a certain percentage – for example 20% or 30% or more – of that corporation’s revenue or operations is from the Canadian oil sands, according to Chris Short, a Calgary-based senior vice president and manager of broking at Aon.

“One result is that the oil sands has lost a number of key markets over the last three years, leading to a loss of hundreds of millions of dollars in capacity for property insurance alone in Canada,” said Short, who works specifically in the energy sector. “This makes it more challenging for a broker who needs to place insurance.”

Aon has a number of commercial clients in the oil and gas sector who are directly impacted by the withdrawal of coverage on the part of some insurers.  Among the clients affected are producers and pipeline companies.

“The bitumen coming out of the oil sands has to be moved to market,” Short told Canadian Underwriter in a recent interview. “Some insurers are including infrastructure related to the oil sands in their prohibition.”

Canada’s oil sands account for about one-tenth of 1% of global greenhouse gas emissions, Natural Resources Canada reports.

Several insurers received a letter in 2019 from dozens of advocacy groups who urged carriers to stop underwriting the Trans Mountain pipeline, which was recently bought by the federal government. The Trans Mountain, built in the 1950s, transports petroleum from Edmonton to a tanker terminal near Vancouver. A project to twin the pipeline – and triple its capacity – was approved in 2019 by the federal government.

Bermuda-based Argo Group International Holdings Ltd. recently announced the Trans Mountain project no longer fits the company’s risk appetite, the Canadian Press reports.

Generally, commercial insurers who cover oil and gas risks fall into three groups, Short told Canadian Underwriter.

In one group are the insurers who publicly state they are no longer covering oil sands risks as part of their environmental-social-governance (ESG) strategy. In another group, insurers are talking about supporting and being part of the transition to a low-carbon economy.

In the third, insurers have been silent. They continue to support the oil and gas industry in general, said Short.

“Aon acknowledges that the world is transitioning to low-carbon energy sources and is committed to innovating for its clients and supporting them in finding solutions and capital. What is important to Aon is to innovate to support those clients during a transition to a low-carbon economy, as opposed to moving away from those clients.”

On the issue of corporate social responsibility, Short said he would like to see more transparent environmental, social and governance considerations in all industries and regions.

“ESG stands for more than just the environment. The social and the governance part are pretty important as well and I think that Canada has a pretty good track record on socially-responsible investing and good governance.”

For its part, Axis Capital Holdings Ltd. announced in 2019 that by Jan. 1, 2020, it would stop writing new insurance and facultative reinsurance for oil sands extraction and pipeline projects. The thinking behind Bermuda-based Axis Capital’s move is to help mitigate climate risk and transition to a low-carbon economy, Axis CEO Albert Benchimol said earlier.

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