Mr. Chair, I submit the following: Lloyd & Partners Limited, London, England, May 10, 2010. Re Deepwater Horizon/Macondo Well Incident. To Whom it May Concern: About Lloyd & Partners Lloyd & Partners is a London and Bermuda based Major…
Mr. Chair, I submit the following:
Lloyd & Partners Limited,
London, England, May 10, 2010.
Re Deepwater Horizon/Macondo Well Incident.
To Whom it May Concern:
About Lloyd & Partners
Lloyd & Partners is a London and Bermuda based Major
Account (complex risk) insurance broker specialising in
onshore and offshore energy insurance with premiums placed
annually in excess of USD1.5bn. Overall Lloyd & Partners
employs over 200 people and our 40 plus strong Energy team is
one of the largest and most respected teams in the London
market. We arrange both Property and Liability Insurance for
a wide range of Energy insureds including integrated oil
companies, exploration & production companies and drilling/
service contractors.
Available Liability Insurance Capacity under normal
Insurance conditions (policies with normal terms and
conditions)
Prior to tine recent Gulf of Mexico drilling incident,
worldwide third party pollution liability capacity for
offshore energy operations was in excess of USD1.5bn for each
insured on a 100% basis (meaning the limits scaled to an
individual insured working interest in a project).
Whilst the insurance market previously attempted to limit
their ``clash'' exposures (where they could pick up a loss
from more than one insured from the same loss) by scaling
their limits to an operating group company's working
interest, in the main they had previously thought of clashes
between operators and contractors as the Joint Operating
Agreement would have given them some comfort that only the
operator would be liable for a pollution loss, the concern
now is that a loss of the nature we are witnessing may result
in attempts to hold all the parties responsible regardless of
the provisions of the JOA.
We have therefore already seen in the market a realisation
that if every party involved in the loss (operating group,
drilling contractor, other service contractors--such as mud
or cementing contractors--and blowout preventor manufactures)
are successfully sued then the market will be exposed to a
degree much larger than anticipated when committing capacity
to individual insureds. This has already resulted in at least
one major London energy liability insurance leader advising
us that they are cuffing back their maximum capacity for
individual insureds by a third.
At this stage it is really impossible to accurately predict
what the exact impact of this loss will have on available
capacity but we think it could result in a reduction of such
capacity of around 15% to 30%.
Available Liability Insurance Capacity under OPA
``certificates''
Where insurers are asked to provide full coverage under OPA
(being strict liability with direct access to insurers and no
defence of normal insurance policy terms and conditions)
capacity is much more restricted than normal third party
liability and we estimate available capacity would be no more
than USD150mm--USD200mm.
Pricing
Prior to the recent incident the market was in a ``soft''
phase where rates were low as a result of oversupply of
capacity, as not many insureds purchased the full available
capacity (typically offshore E&P companies would have
purchased on average somewhere around USD 250mm to USD 500mm
in limits.)
There is not likely to be pressure from both sides of the
supply and demand equation, as capacity shrinks and demand
for higher limits materialises (as the recent loss highlights
the potential to insureds for a loss of a magnitude higher
than most are protected for) which coupled with the fact the
market will be looking to recoup the loss they will have to
pay out from this latest incident, is likely to result in a
significant increase in offshore liability insurance
premiums.
Proposed changes to legislation
Currently OPA provides operators of offshore facilities a
limitation of USD 75mm for ``Economic Claims'' (loss of
earnings rather than clean-up costs or property damage caused
by pollution). Any significant increases in this limit will
cause insureds operations in US Waters to face the prospect
of significant self insurance, since (depending on the
amount) the insurance market will not have sufficient
capacity to provide cover for this in addition clean-up costs
and third party properties damage suits).
Your sincerely,
John Lloyd,
Chairman and CEO.