Deepwater Horizon Loss: Not A Market Changer

The explosion of the Deepwater Horizon rig has had dramatic consequences in terms of loss of life and pollution, but is not a market changing event for offshore energy insurers, according to a new report by Marsh.

In its latest Energy Market Monitor, Marsh says the most recent market moving event was Hurricanes Katrina and Rita when rates in the Gulf of Mexico went from the ranges of 0.4 percent to 3.5 percent and limits dropped by 75 percent.

In contrast, while energy insurers have been unsettled by the Deepwater Horizon losses, capacity has not constricted and price increases are likely to be modest unless further major losses occur. Marsh explains:

The market is getting rises on offshore renewals but not large rises. There isn’t a lack of capacity and, as things stand, no one looks as though they are ‘leaving the party’. Until that happens, the offshore market will continue to drift unless the reinsurers inflict ‘market moving’ reinsurance prices.†

Nevertheless, Marsh reports that many firms involved in offshore activities are reviewing their current insurance programs and are seeking to top up their cover.  A press release cites  Jim Pierce, chairman of Marsh’s Global Energy Practice:

Some insurers have been capitalizing on their clients’ concerns and have been hiking up their prices for higher limits and deepwater drilling wells, regardless of where they are located.†

For more on this story, check out a Wall Street Journal online article. Check out the I.I.I. presentation on the Deepwater Horizon event and primer on offshore energy facilities and insurance considerations.

Leave a Reply

Your email address will not be published. Required fields are marked *