Today's Trends: Insurance Losses Not Major Event for P&C Insurance Market

The Deepwater Horizon incident will not be a major event for the property & casualty (P&C) insurance industry, according to global professional services company Towers Watson. Towers Watson estimates that net commercially insured losses would be between $4 billion and $6 billion, a fraction of the total economic loss that is currently estimated to be $35 billion.

"While litigation arising from the Gulf oil spill may take decades to resolve, under an apportionment of the liability, it is expected that the companies directly involved will be called upon to pay claims substantially in excess of their insurance limits, thus the full value of the insurance policies are likely to be drawn upon," said Towers Watson.

James Hole, Towers Watson managing director and a leader within the company's reinsurance brokerage business, said the insurance industry has been operating in a soft market for the last six years, with commercial insurance prices generally falling for five years and flat for the last year. "Usually, a major event causes the market to turn, with prices rising in the wake of the red ink. We do not expect that Deepwater is a sufficiently significant event to turn the overall commercial insurance market."

Towers Watson's estimate includes Transocean's disclosure that it has $945 million of insurance coverage on the Deepwater Horizon, including $560 million of insured property value, plus $385 million in additional coverages) and liability insurance coverage of $950 million.

Anadarko Petroleum, which holds 25 percent interest in the Macondo well, has insurance coverage of $163 million from which to draw upon, while 10 percent interest holder Mitsui has pollution liability coverage of $150 million.

Cameron International, which manufactured the well's blowout preventer, reported it has liability coverage of $500 million. Halliburton, which was responsible for cementing the well, has $600 million in liability insurance coverage. BP has a captive insurer, but no outside coverage commercial liability insurance coverage for the event.

These coverage limits total $3.3 billion. By comparison in 2009 dollars, losses from the September 11, 2001 terrorist attack were about $23 billion, and losses from Hurricane Katrina were about $71 billion, according to Swiss Re's sigma report. In a typical year, total catastrophe losses in the U.S. total about $7 billion.

It is possible that other corporations that were involved in some way in the design, delivery, construction or operation of the Macondo well could be drawn into the liability litigation. "While somewhat unsportsmanlike, those who are helping with the cleanup may also be drawn in," said Stephen Lowe, a Towers Watson managing director.


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