Katrina to drive rig cover costs up by 50%
Natural resources, oil news, mining news, Times Online
September 15, 2005
Katrina to drive rig cover costs up by 50%
By Christine Seib
PREMIUMS for offshore oil rigs and platforms will rocket 50 per cent, underwriters said yesterday as Lloyd’s of London revealed that Hurricane Katrina would cost the 317-year-old insurance market £1.4 billion.
The cost of the storm that has devastated New Orleans will be at least £100 million higher than last year’s record-beating hurricane season, Lloyd’s said in a statement to the stock market.
Lloyd’s, along with nine other insurance groups, is teetering on the brink of a credit rating downgrade, as Standard & Poor’s, the ratings agency, assesses the impact of Katrina.
Katrina is expected to be the world’s largest insured loss, with estimates of the cost soaring to $60 billion (£33 billion) this week as the floodwaters receded to reveal catastrophic damage.
The bill for the 58 Gulf of Mexico oil platforms and drilling rigs destroyed or displaced by the hurricane is expected to come to $5 billion, halting the fall in the cost of insurance for the structures, according to Kiln, the Lloyd’s insurer and reinsurer.
Edward Creasy, chief executive of Kiln, said that the cost of insurance across all classes of business began rising almost immediately as Lloyd’s insurers counted their losses. “We had forecast that rates would fall 7 per cent overall as the market softened but now we think they’ll go up by 12.5 per cent on average,” Mr Creasy said. “We think offshore risks across the world could go up by 50 per cent, or more for those in the Gulf of Mexico.”
Last year the cost of insurance for offshore rigs fell by about 20 per cent as insurers fought for the business. The annual premium for a platform is about 0.75 per cent of the value of the structure, or 1 per cent if the policy covers business interruption. The structures can be worth more than £1 billion.
Roger Field, director of underwriting at Brit Insurance, one of Lloyd’s biggest insurers, said he expected a “dramatic change” in the cost of insurance to become apparent when reinsurance policy renewals were agreed on January 1. Renewal negotiations usually begin next month and underwriters are “still assessing their position”, he said. “It’s inevitable that there will be a significant adjustment.”
Lloyd’s gave warning yesterday that the final bill could be higher than £1.4 billion. “It will not be possible for some time to have a precise view of the ultimate insured loss because this is a complex catastrophe,” it said.
Experts have predicted lengthy legal wrangles over who is responsible for claims because of indecision over whether much of the damage was caused by wind from the hurricane or by subsequent flooding when levees broke.
Lloyd’s was adamant yesterday that no insurer in the market was under threat because of its losses. But a spokesman said that the market was aware that, with two months of the hurricane season to go, further storms could be more damaging. “Further hurricanes would be very painful,” Robert Hiscox, chairman of Hiscox, the insurer, said on Tuesday.
Katrina cut US industrial production by about 0.3 percentage points last month.
September 15, 2005
Katrina to drive rig cover costs up by 50%
By Christine Seib
PREMIUMS for offshore oil rigs and platforms will rocket 50 per cent, underwriters said yesterday as Lloyd’s of London revealed that Hurricane Katrina would cost the 317-year-old insurance market £1.4 billion.
The cost of the storm that has devastated New Orleans will be at least £100 million higher than last year’s record-beating hurricane season, Lloyd’s said in a statement to the stock market.
Lloyd’s, along with nine other insurance groups, is teetering on the brink of a credit rating downgrade, as Standard & Poor’s, the ratings agency, assesses the impact of Katrina.
Katrina is expected to be the world’s largest insured loss, with estimates of the cost soaring to $60 billion (£33 billion) this week as the floodwaters receded to reveal catastrophic damage.
The bill for the 58 Gulf of Mexico oil platforms and drilling rigs destroyed or displaced by the hurricane is expected to come to $5 billion, halting the fall in the cost of insurance for the structures, according to Kiln, the Lloyd’s insurer and reinsurer.
Edward Creasy, chief executive of Kiln, said that the cost of insurance across all classes of business began rising almost immediately as Lloyd’s insurers counted their losses. “We had forecast that rates would fall 7 per cent overall as the market softened but now we think they’ll go up by 12.5 per cent on average,” Mr Creasy said. “We think offshore risks across the world could go up by 50 per cent, or more for those in the Gulf of Mexico.”
Last year the cost of insurance for offshore rigs fell by about 20 per cent as insurers fought for the business. The annual premium for a platform is about 0.75 per cent of the value of the structure, or 1 per cent if the policy covers business interruption. The structures can be worth more than £1 billion.
Roger Field, director of underwriting at Brit Insurance, one of Lloyd’s biggest insurers, said he expected a “dramatic change” in the cost of insurance to become apparent when reinsurance policy renewals were agreed on January 1. Renewal negotiations usually begin next month and underwriters are “still assessing their position”, he said. “It’s inevitable that there will be a significant adjustment.”
Lloyd’s gave warning yesterday that the final bill could be higher than £1.4 billion. “It will not be possible for some time to have a precise view of the ultimate insured loss because this is a complex catastrophe,” it said.
Experts have predicted lengthy legal wrangles over who is responsible for claims because of indecision over whether much of the damage was caused by wind from the hurricane or by subsequent flooding when levees broke.
Lloyd’s was adamant yesterday that no insurer in the market was under threat because of its losses. But a spokesman said that the market was aware that, with two months of the hurricane season to go, further storms could be more damaging. “Further hurricanes would be very painful,” Robert Hiscox, chairman of Hiscox, the insurer, said on Tuesday.
Katrina cut US industrial production by about 0.3 percentage points last month.
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