2.1. Mexico opens its doors to private energy investment enhancing demand for specialist (re)insurance (Mexico)
Mexico’s recent government liberalisation has fuelled predictions of a transformation in its energy sector, leading to increased demand for specialist (re)insurance. According to Lloyd’s Mexico Desk Manager, Gabriel Anguiano, particular growth is expected in offshore energy - where the majority of the country’s potential oil reserves are located. Recent years have seen a decline in production in shallow waters meaning that the industry will have to venture into deep waters. Observers believe this may have prompted the energy reform, ending the monopoly of the state-owned oil company Pemex. This allows Pemex to enter into joint ventures with private international or Mexican companies and gain access to technologies such as deep water drilling and shale gas extraction and consequently improve future production.
The new laws mean foreign and private domestic energy companies will be allowed to explore, produce and refine oil for the first time since 1938. International companies such as Japan’s Mitsui and US-based Chevron Corp, have already indicated their interest in investing, whilst start-up exploration firm Sierra Oil & Gas has secured over US$500 million of commitments from three private equity firms.
Mexico’s natural resources combined with global energy demand present considerable opportunities – it is believed that Mexico has the sixth largest shale gas reserves in the world and is the seventh largest oil producer.
Michael Gunther, Energy & Infrastructure Practice Leader, Mexico for Marsh, highlights that, although international insurance and reinsurance has covered Mexican energy risks for years, the introduction of private companies and joint ventures will offer new risk transfer requirements.
It is predicted that the international (re)insurance needs of the energy sector will expand extensively with the development of projects increasing in size and complexity. The Chief Executive of LatAm reinsurer Patris Re, Ingrid Carlou, says “facultative covers are expected to be in high demand as technology adoption kick starts the investment dynamics and there will be a huge spill over to property and personal lines. New deep water exploration and more sophisticated distribution technologies will...make their way to the international reinsurance market.”
In addition, international companies’ expertise in underwriting more composite energy policies will be valuable, especially for deep sea drilling and construction which the Mexican (re)insurance market does not commonly underwrite. Luis Marcias, Senior Vice President, Facultative Reinsurance for Mexico at Guy Carpenter believes that providing the markets with accurate and appropriate information for the assessment of risk, “will likely increase the premium volume of our market”; he predicts the insurance market in general stands to benefit.