• Wednesday, 16 May, 2012

Lloyd's boss says spill upping rates

Deepwater Horizon: Insurers raising rates.

EPA / US Coast Guard

related stories

Noah Brenner

 22 June 2010 19:54 GMT

The BP oil spill in the Gulf of Mexico will push up the price of insurance on offshore drilling, Lloyd’s of London boss Richard Ward said.



Insurers are charging 50% more for policies covering oil rigs after an explosion on the Deepwater in the Gulf of Mexico triggered the worst spill in US history, Moody’s Investors Service said on 3 June.

“Rates have to go up quite significantly,” Ward said said in an interview on Bloomberg Television’s “In Business With Margaret Brennan” today

“Rates had fallen to quite a low level in the Gulf of Mexico for offshore energy. We’d been questioning the profitability of insurance in that region for quite some time.”

BP has spent $2 billion to respond to the disaster.

Lloyd’s estimates its insurers will pay $300 million to $600 million in claims related to the Transocean semi-submersible rig Deepwater Horizon.

Lloyd’s underwriters insured the rig and have caps on the coverage it provided for environmental damage caused by the spill.

BP, which did not buy insurance, will cover the majority of the costs, forecast to be at least $20 billion by the US government.

“We should see more capital come in,” Ward said of the capacity of insurers to cover greater risks in the Gulf. “With these major catastrophes, you always get a rate adjustment after the catastrophe,” Ward said in a separate interview at Bloomberg headquarters in New York before his TV appearance.

Lloyd’s, the three-century-old insurance market, is composed of more than 80 syndicates that underwrite risks on commercial property, marine risks and celebrity assets.

The syndicates that insured Transocean have already contributed about half of a $570 million payment tied to the rig’s destruction, Ward said.

Lloyd’s underwriters have sued BP in US district court, asking the judge to declare that they have no obligation to cover pollution-related liability claims resulting from the spill because contracts between BP and Transocean stipulated that the rig owner would not be responsible for contamination that originates below the surface.

BP made an attempt to provide the insurers with a notice of claims in May, Lloyd’s underwriters said in their complaint.

“Policies are not as clear cut as you might expect, there’s always a bit of ambiguity,” Ward said of the dispute with BP.

“No one, I don’t believe, has a good understanding at this point in time as to what the cause was. And until you do have a good understanding of the cause, it’s difficult to know where are the liabilities.”

Judge Melinda Harmon called a pretrial conference for 9 September in Houston.

Lloyd’s insurers reported record profits last year on a benign North Atlantic hurricane season and higher investment returns.

The market keeps about a third of its assets in corporate bonds, a third in cash and a third in government obligations, mostly from the US and UK, Ward said.

“We have significant exposure to the US and significant exposure to the UK, and we’re comfortable with that,” Ward said.

“We are not going to shift that portfolio significantly in the next few years.”

Insured losses tied to natural disasters have increased this year as carriers pay claims tied to rainstorms in the US North-east, the earthquake in Chile and windstorms in Europe. Yesterday, AccuWeather boosted its forecast for the this year’s Atlantic hurricane season to 18 to 21 named storms, up from 16 to 18.

Climate change, Ward said, is pushing up catastrophe risk, while increases in global trade are raising the cost of disasters.

“Everyone is having to reassess the risk arising from climate change and recognize that severity and frequency is increasing,” Ward said.

“We now suddenly discover we are exposed to risks around the world. Supply chains are getting more complex. Supply chain risk is a big issue. With greater wealth comes greater risk.”

User

Become an Upstream member!

Membership includes a subscription to our weekly newspaper providing in-depth news from the energy industry, plus full-access to this site and its archives. Still not convinced? Try our free trial.

Already a member?

Login

Upstream share price index

Recruitment
See all available positions
Events
2
06.05.2012

06

May

06.05.2012 -  20th Middle East Petroleum & Gas Conference (MPGC 2012)

MPGC 2012 will be held from 6-8 May and is returning to Bahrain again, on the occasion of its 20th Anniversary. The conference will be held under the Patronage of His Excellency Dr. Abdul Hussain bin Ali Mirza, Minister of Energy-Chairman of National Oil & Gas Authority, Kingdom of Bahrain and with National Oil & Gas Authority (NOGA) & The Bahrain Petroleum Company (Bapco) as hosts.
The Conference Connection Inc
Read more »
07.05.2012

07

May

07.05.2012 -  20th Middle East Petroleum & Gas Conference (MPGC 2012)

MPGC 2012 will be held from 6-8 May and is returning to Bahrain again, on the occasion of its 20th Anniversary. The conference will be held under the Patronage of His Excellency Dr. Abdul Hussain bin Ali Mirza, Minister of Energy-Chairman of National Oil & Gas Authority, Kingdom of Bahrain and with National Oil & Gas Authority (NOGA) & The Bahrain Petroleum Company (Bapco) as hosts.
The Conference Connection Inc
Read more »
08.05.2012

08

May

08.05.2012 -  20th Middle East Petroleum & Gas Conference (MPGC 2012)

MPGC 2012 will be held from 6-8 May and is returning to Bahrain again, on the occasion of its 20th Anniversary. The conference will be held under the Patronage of His Excellency Dr. Abdul Hussain bin Ali Mirza, Minister of Energy-Chairman of National Oil & Gas Authority, Kingdom of Bahrain and with National Oil & Gas Authority (NOGA) & The Bahrain Petroleum Company (Bapco) as hosts.
The Conference Connection Inc
Read more »