Friday, August 29, 2008

Oil cos, speculators buy Gustav-linked derivatives. And: Oil Rig Insurers

From Reuters:
A swift business is being done in Gustav-linked derivatives as energy companies and insurers scramble to cover themselves and others speculate the tropical storm will become a hurricane and wind its way into the Gulf of Mexico in coming days.

Insurance brokerage Carvill is among the companies to sell catastrophe, or cat, derivatives to plug gaps in reinsurance capacity that can follow disasters, such as Hurricane Katrina.

Of particular interest to energy companies are so-called cat-in-the-box products, which cover a specific geographic area that is home to many offshore oil and gas rigs.

"We have energy companies buying to protect rigs in the Gulf with the cat-in-the-box product ... while (coastal contracts) cover the landfall of the storm, and are being bought by insurers, reinsurers and hedge funds," Patrick Gonnelli, president of Carvill Capital Markets, said in a phone interview....MORE

HT: RISK Over-the-Counter who had this post last November (a little late in the season, eh wot?):

For Whom the Cat Risk Tolls

Casual observers of the catastrophe risk transfer market might be forgiven for thinking catastrophe bonds are the be-all and end-all when it comes to non-traditional sources of reinsurance. They're wrong.

Privately negotiated natural catastrophe derivatives and industry-loss warranties (ILWs), de facto catastrophe index options structured as reinsurance contracts, are viewed by many as an equally important instrument in encouraging the convergence of insurance and financial risks....

We had this in July '07:
How To Hedge A Hurricane

And in Feb. '07:
ME-Carvill Hurricane Index to be Available for 2007 Hurricane Season

(oops, RISK beat us on that one by three days)

From Bloomberg:

Oil-Rig Insurers Brace for Test as Gustav Bears Down

Tropical Storm Gustav, projected to reach the Gulf of Mexico by Sunday, may reveal whether insurers have done enough to limit risks of covering offshore oil rigs in the wake of hurricanes Katrina and Rita.

American International Group Inc., Zurich Financial Services Group AG and Liberty Mutual Group Inc. were among insurers that raised prices fivefold and capped losses after the two hurricanes caused record offshore claims estimated at $8 billion in 2005....MORE