National Insurer Sees Risks Ahead in Mexico's Oil IndustryBy Peter Appleby | Tue, 08/04/2020 - 09:04
Q: Which companies does ASESARO work with and what are your most popular services?
A: We have secured contracts with PEMEX and other major players within the oil and gas industry. These range from drilling companies to marine companies and service providers of all kinds. We also have secured subcontracts with companies that work for the major service providers. In this sense, we work across the industry’s value chain.
The majority of our work is based around providing guaranteed bonds to industry players. This implies risk and financial analysis of the company. We ensure that companies are able to meet financial commitments and carry out their roles within a contract so that the bonds can be secured. On the side of risk analysis, we analyze the providers of our clients so that our clients can authorize requested credit.
Q: How does ASESARO differentiate itself from other insurance providers?
A: ASESARO has been in the insurance and securities sector for 20 years, with a focus on oil and gas for the past 15 years. We know the industry and the operators, and we understand the way contracts are structured and financed. This is our differentiator. Our experience of the internal processes of the industry’s main players and the insurance and securities companies within the sector means we have knowledge that few other insurers can match. ASESARO also offers its clients an objective view of contracts and risk, allowing them to make efficient and smart decisions based on our guidance.
Q: How will COVID-19 impact the process of providing insurance and risk assessment to oil companies?
A: COVID-19 has certainly had an impact on the insurance and risk industry. As we know, oil demand has dropped due to the pandemic. The OPEC+ deal was agreed to reduce production in the face of rising storage levels of crude and to help improve prices. But oil’s fall into negative pricing has changed the way that insurers and surety bond suppliers make decisions.
A side concern for Mexico’s oil and gas industry are the ratings downgrades on the country and on PEMEX. When an insurer or surety bond supplier delivers a policy to a client, this policy does not take all of the risk. Re-insurers, which buy risk and help underwrite a project, are also present in the transaction. But when a country sees its bond rating downgraded, these re-insurers become more cautious in terms of the risks they take on. This means that ASESARO and companies like us have to search for those re-insurers that still accept this risk.
The increased financial risk within the industry and Mexico as a result of COVID-19 is extremely important. For example, credit insurance insures accounts receivable from credit sales. That is to say, if a company wants to sell credit to a client it contracts insurance to be paid within a certain time frame. But re-insurers in the oil and gas industry are not accepting these risks. This is partly because most service companies are contracted by PEMEX and PEMEX pays contractors 180 days or more after the work is completed. But that service company is likely to have an obligation to pay its credit within 70 to 90 days. This difference is not covered and represents a big risk. Re-insurers are not accepting this risk except in special circumstances. This is a problem for clients and for the industry at large.
Q: What risks does ASESARO insure oil companies against?
A: Our principal insurance product targets civil responsibility. This is in case a company, in the course of its work in an oil field, in some way damages the field or the installations on it. This policy will cover any damage incurred. A few years ago, PEMEX made this civil responsibility policy obligatory for its service contractors. However, service providers are no longer contractually obliged to have this security measure. This is a delicate situation because, if there was to be an unfortunate accident while working, companies could go bankrupt. An oil spill, for example, would certainly bankrupt a company if it did not have insurance.
Q: How do ASESARO’s alliances with other companies and its involvement in the Tabasco Energy Cluster benefit the company?
A: ASESARO’s alliances are very important. They began with the National Energy Council of Entrepreneurs, which is an organization that focuses on the development of service providers.
I am currently the Secretary of the Tabasco Energy Cluster. We participated in the creation of the National Council for Energy Clusters that Tabasco chairs. We have direct access to the Minister of Tabasco Energy Development and the state government of Tabasco and we are close to the state’s Ministry of Economy. The Tabasco Energy Cluster has a seat on the PEMEX Business Advisory Council. All of this is very helpful for both ASESARO and the cluster’s members to receive fresh, direct news from the corporate side of PEMEX. It also provides a voice for local companies so that we can express the need to develop the supply chain nationally and not just in Tabasco. ASESARO has also delivered warranties courses to local government ministries. This is not for economic gain but to disseminate knowledge, so that those individuals who do not work in the industry can understand how the sector works and why certain aspects are necessary.
We are also part of Holland House, which has helped the company expand its contact network and improve its connections with companies from Holland, Mexico and around the world. This is important for fostering community within the industry and enhancing the potential for new business.
ASESARO is busy working with private players and with PEMEX. We are not forecasting growth this year, but the expectation is to begin growing again in 3Q21. The strategies we have implemented and our commitment to find the best terms for our clients while delivering an added value means that we have the fundamentals to survive and reignite growth.
ASESARO is a Tabasco-based insurer and risk analysis firm for national and international companies working in the Mexican market. The firm has over 15 years’ experience and is part of the Tabasco Energy Cluster