BP’s Gulf of Mexico oil spill, which is expected to cause the most environmental damage and to be the most expensive to clean up since Exxon Valdez in 1989, is projected to cost insurers up to $1.5bn.
That is before taking into account the liabilities from environmental damage.
The figure might not sound huge compared with the tens of billions lost in US hurricane damage in recent years, but it could hit the price of re-insurance as businesses prepare to renew cover for energy and catastrophe losses.
Reinsurance prices had been falling as the rebound in investment markets from their nadir in March 2009 combined with a lack of big catastrophe losses: there were just two named hurricanes in the Gulf.
This softening followed large rises last year when insurers and reinsurers struggled to recoup the costs of hurricanes Ike and Gustav in 2008, which had caused the third biggest loss on record.
The Deepwater Horizon spill follows big losses for the industry in the first quarter: the earthquake in Chile is set to cost $6bn-$8bn and a winter windstorm in Europe, Xynthia, is likely to cost €1.5bn-€2bn ($2bn-$2.6bn).
“There will likely be a marked effect on upcoming energy insurance renewals,” Stephen Vivian, Managing Director at Guy Carpenter, an industry consultancy. “Drilling contractor business may witness rises of at least 30 per cent and liability programme could potentially attract rises of over 100 per cent if, and it is an ‘if’, the loss ultimately impacts the liability insurers. This loss is unprecedented and is complicated.”
Other reinsurers expected prices to rise – especially for energy related business – but it was too early to put a figure on the amount.
Many energy programmes renew May 1, and market exerts expect insurers to honour prices quoted before the spill. But it is highly unlikely renewals on July 1 will remain unaffected.
Insurers and reinsurers have estimated direct insurance losses from the Deepwater Horizon oil rig explosion will be $1bn-$1.5bn. Some reinsurers have begun to estimate individual exposures; these include Bermuda-based PartnerReat $60m-$70m and Montpelier Re at $20m; Germany’s Hannover Re at €40m ($53m) and Munich Re at $100m; and Transatlantic Holdings, formerly part of AIG, at $15m.
Lloyd’s of London, the insurance market, said some members had exposure to Transocean, the owner of the oil platform, but it was too early to estimate losses. “We are currently reviewing our contracts to ascertain what parties have interest in the platform and oil well other than BP and Transocean.”...MORE
Tuesday, May 4, 2010
Oil Spill: "Insurers exposed to $1.5bn costs"
We have a backlog of stories in the link-vault, first up some insurance insight. From the Financial Times, May 3: