Reinsures have bumped up prices for offshore energy-related insurance premiums by 50 per cent following insurance industry losses of up to $3.5 billion from the BP Plc oil spill in the Gulf of Mexico, Moody’s Investor Service said in a report on Thursday.
Total insured losses from the worst oil spill in US history are expected to be between $1.4 billion and $3.5 billion, although losses would be significantly higher if BP had purchased liability insurance instead of self-insuring its risks through its captive insurance programme, said Moody’s.
Like most large oil companies, BP is self insured for clean up costs; in its case through captive insurer Jupiter Insurance Ltd. This substantially reduced the exposure of the commercial reinsurance industry to the event, said Moody’s, which predicted a lengthy and continuous period of class action lawsuits from other liable parties.
Millions of gallons of oil have poured into the Gulf of Mexico since an April 20 blast on the Deepwater Horizon rig triggered a huge spill, soiling 100 miles (160 km) of coastline, threatening some of the United States’ richest fisheries.
Moody’s said the event will have a meaningful impact on the market for offshore energy-related insurance coverages, with early reports indicating a 15 to 25 per cent increase in property coverages for rigs operating in shallow waters and up to 50 per cent higher for deepwater rigs.
“Pricing for offshore energy liability insurance is sure to trend higher as insurers and reinsurers take stock of their losses and re-evaluate the complex risks associated with drilling in deep waters,” said James Eck, vice president - senior credit officer at Moody’s.