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Gulf spill insurance exposure tops $1.6B: Moody's

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Offshore energy companies involved in the Deepwater Horizon oil spill have $1.61 billion in liability insurance limits, according Moody's Investors Service.

The Deepwater Horizon oil rig sank April 22 after an explosion on board that killed 11 workers. The operator of the rig, BP P.L.C., last week attempted another operation to stop the flow of oil from a leaking well, which is gushing at least 12,000 barrels of oil a day into the ocean.

In a report released last week, Moody's said that Transocean Ltd., which owned the rig, carries $950 million in liability limits; Cameron International Corp., which provided the blowout preventer, has $500 million in liability limits; and Anadarko Petroleum Corp., which holds a 25% working interest in the project, has $162 million in liability limits.

Transocean also had $560 million in property coverage for the rig, which has been declared a total loss.

Smith International Inc. and Halliburton Co., both drilling service providers, as well as Mitsui & Co. Ltd., which has a 10% working interest in the project, also have exposure to the loss, but Moody's said no information is available on those firms' exposure.

BP self-insured its liability and property exposure.

A.M. Best Co. on Wednesday revised its outlook on BP's captive, Jupiter Insurance Ltd., from stable to negative in light of the ongoing Deepwater losses. “Given the magnitude of this event, it is currently impossible to assess the impact on BP, both in terms of financial liabilities and reputational damage,” Best said in its report.

However, Best affirmed the financial strength rating of “A+” for Jupiter, saying the captive's financial position is likely to remain strong.

“Although Jupiter has established loss reserves at its policy limit of $700 million, risk-adjusted capital still soundly supports the rating level,” the report said.

Moody's said that if BP had not self-insured, the commercial insurance and reinsurance industry's exposure to the loss would have been even higher than current estimates, which put total insured losses for the event between $1.4 billion and $3.5 billion.

So far, 14 insurers and reinsurers have released loss estimates for a total of $611 million in expected losses, Moody's said. Those companies are Swiss Reinsurance Co. Ltd., Munich Reinsurance Co., PartnerRe Ltd., Hannover Reinsurance Co., Validus Holdings Ltd., Catlin Group Ltd., Lancashire Holdings Ltd., Chaucer Holdings P.L.C., Montpelier Re Holdings Ltd., Amlin P.L.C., Transatlantic Holdings Inc., Hiscox Ltd., RJ Kiln & Co. Ltd. and Beazley P.L.C.

Moody's said some prominent Bermuda insurers and reinsurers have not released loss estimates, indicating that they expect their exposure to be below the U.S. Security and Exchange Commission's reporting requirement threshold, typically around $25 million.

With cleanup costs already approaching $1 billion, this spill will be far costlier than the 1989 Exxon Valdez spill, Moody's said.

Meanwhile, Moody's said property insurance rates for offshore oil companies have increased 15% to 25% for shallow water projects, and 50% or more for deepwater rigs.