THE EVENT: On April 22, the drilling rig Deepwater Horizon,
owned by Transocean Ltd. (RIG) and leased to BP PLC (BP.LN), sank
off the coast of Louisiana in the Gulf of Mexico after an explosion
and fire onboard the rig. Eleven people died from the event.
Efforts to stop the oil spill have so far been unsuccessful. More
than 12,000 barrels of oil per day are spilling into the ocean,
threatening to cause an environmental catastrophe along the U.S.
coastline. If containment efforts fail, the crude will likely
continue to flow at least until a relief well is completed in
August.
GENERAL IMPACT ON INSURERS: As the oil spill continues,
insurance claims are also expected to soar and hit insurance and
reinsurance companies that cover different aspects of the
disaster-- including marine hull, marine liability, general
liability, environmental/pollution liability, business
interruption, directors' and officers' liability and workers'
compensation.
IMPACT ON LLOYD'S OF LONDON INSURERS: Lloyd's of London insurers
are expected to fork out between $300 million and $600 million on
claims from the Deepwater Horizon explosion, according to the
London market, although the figures remain at an early stage as
assessing claims continues.
Some of the larger exposures have fallen at the doors of listed
insurers Catlin Group Ltd (CGL.LN), Lancashire Holdings Ltd
(LRE.LN) and Chaucer Holdings PLC (CHU.LN) with the former
forecasting losses of around $40 million and the other two
estimating $25 million of losses each.
ANALYST REACTION:
*Moody's Investors Service said Thursday that total insured
losses from this event are currently estimated to be between $1.4
billion and $3.5 billion. "With several parties involved in the
drilling work, dozens of class-action lawsuits filed and the
ultimate extent of environmental damage unknown, the complexities
associated with loss claims are significant and could take many
years to be resolved," Moody's said.
*Oriel Securities analyst Thomas Dorner said last week: "The
scale of industry loss will lead to significant price increases.
Although energy rates declined in early 2010 from peak levels in
2009, this loss evidences that rates are still not high enough to
compensate for the risk of loss. In our view, it is likely that
midsize oil and gas companies will increase the amount of cover
they purchase. Larger players are expected to continue to self
insure."
WHAT THE KEY COMPANIES SAY:
*BP: CEO Tony Hayward has tried to play down the effect of the
oil spill by saying May 18 that "the overall environmental impact
[of the Deepwater Horizon oil spill] will be very, very modest."
Recently, he admitted BP wasn't adequately prepared for the crisis,
and told the Financial Times: "What is undoubtedly true is that we
did not have the tools you would want in your toolkit." BP has
tried various methods to plug the oil spill and is currently using
robot submarines TO siphon off oil belching from the ruptured
wellhead.
*TRANSOCEAN: CEO Steven Newman said May 28 the company will pay
a shareholder-approved $1 billion dividend and still meet all of
its legal obligations related to the oil spill. "The payment of the
dividend will not affect the company's ability to meet its legal
obligations," Newman said. More than a dozen U.S. senators, led by
Ron Wyden, questioned the dividend payment, saying it may make it
more difficult to pursue liability claims against the company.
SHARE REACTION: BP shares have fallen 34% since April 21 to
close at 430 pence on Wednesday. Over the same period, Transocean
shares have fallen 47% to $48.45 on Tuesday.
DEEPWATER HORIZON LOSS ESTIMATES (Source: Moody's Investor
Service):
COMPANY MIDPOINT OF RANGE OR BEST ESTIMATE
Swiss Re $200M
Munich Re $80M
Partner Re $65M
Hannover Re $53M
Validus Holdings $42M
Catlin Group $40M
Lancashire Holdings $25M
Chaucer Holdings $25M
Montpelier Re Holdings $20M
Amlin $15M
Transatlantic Holdings $15M
Hiscox $15M
RJ Kiln & Co. $10M
Beazley $6M
- By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0)
2078429486, vladimir.guevarra@dowjones.com
(Rachael Gormley contributed to this item.)