Reinsurers Anticipate Gulf Coast Oil Spill Losses Will Be Major

The blame game for the recent British Petroleum oil spill along the Gulf Coast is just getting started as are the insurance implications of this disastrous event, according to underwriters and other observers.

“It’s going to take several years to sort out the various liabilities and what resources in terms of insurance assets and other assets each player is going to contribute,” said John Nevius, a shareholder at Anderson Kill & Olick in New York and an expert in environmental insurance coverage.

According to Marla Donovan, vice president of product development at Burns & Wilcox, workers compensation, excess casualty and liability, environmental and contingent business interruption are a few of the coverages that could be triggered by this event, but she expects the worst-case scenario.

“All liability coverages will be triggered,” said Donovan. “This is an enormous property damage loss.”

BP and the exploration company Transocean, and potentially Cameron International Corp. and Halliburton Co., are expected to have numerous payouts to deal with. These payouts will include coastal property owners, businesses along the Gulf Coast, and families of the lost rig workers, just to name a few. Gulf Coast shrimpers, a Mississippi seafood company and stranded rig workers have already filed suits.

BP CEO Tony Hayward has told news outlets the company will honor all “legitimate claims” arising from the disaster. BP is self-insured but its total amount of self-insured retention is unknown. Reinsurers will still be on the hook for a substantial amount.

“Every major reinsurer in the world is involved in this claim,” said Donovan. “Swiss Re, Munich Re, Gen Re, Partner Re – everyone has a piece of this.”

Partner Re has estimated that its losses could be $70 million, but Donovan and Nevius agree these are modest amounts at this point. However, it is important for the reinsurers to come forward with their potential liability so it doesn’t look like they are dodging the situation. “Usually the estimates are about one third of what it ends up being,” said Donovan. “But no one that is participating can remain silent. It is standard for them to indicate how much they are involved and that is absolutely what is happening.”

Topics Profit Loss Energy Oil Gas Reinsurance