Sanction-fueled oil demand could boost Alberta captives plan

Sanctions on Russian oil and a major insurer’s recent announcement that it will depart oil sands coverage could spark additional interest in Alberta’s plans to allow captive insurers to domicile in the province.

On Mar. 1, AIG said it had “committed to no longer invest in or provide insurance for construction of any new coal-fired power plants, thermal coal mines or oil sands.”

What’s more, the insurer said it would immediately cease to “invest in or underwrite new operation insurance risks of coal-fired power plants, thermal coal mines or oil sands for those clients that derive 30% or more of their revenues from these industries.”

That change boost Alberta’s work in becoming Canada’s second domicile for captive insurance companies, which are often used by the province’s energy companies to secure coverage for harder-to-place risks.

Under Bill 76, Alberta-licensed captives will be allowed to insure or reinsure risks of a single entity, members of an association or a knowledgeable client with complex insurance needs, said Kassandra Kitz, senior press secretary of the Treasury Board & Finance, Government of Alberta.

“We expect that energy companies, large construction companies, large insurance brokers, utilities, project partnerships or economic development corporations will all be interested in taking advantage of the opportunity presented through our legislation,” she told Canadian Underwriter.

Kitz said that while key sectors like energy are “particularly affected by limited insurance options as some prominent global insurers have adopted misguided policies that prohibit them from insuring, reinsuring or investing in oil sands development and related projects,” the province’s captive legislation recognizes entities in other economic sectors could also benefit.

Still, the timing is right for Alberta’s energy sector. With many countries now banning imports of Russian oil, demand from other stable producers is expected to grow. And insurance ratings agency AM Best noted Russia’s invasion of Ukraine will boost exportation prospects for Canada’s oil industry as importers seek seek alternative suppliers.

“Insurers focused on Canadian commodity exports are likely to see increased demand as higher commodity prices induce greater production and the need for insurance,” said Graziano Brady, an economist with AM Best. “But they may also face more competition as global insurers are forced to shift their business geographically away from Russia and into alternative markets.”

While Bill 76 has received Royal Assent, it won’t be proclaimed into law until regulations governing how Alberta-domiciled captive insurance companies operate are finalized.

“During this legislative session, Alberta’s government will continue to work on additional solutions that will help grow opportunities in our insurance sector and alleviate issues with the current hard market,” said Kitz. “More details about this, as well as finalizing captives regulations, are coming later this spring.”

Feature image by iStock.com/Nalidsa Sukprasert