Gulf of Mexico Oil Spill May Cost Insurers Up to $1.5 Billion in Claims
The growing oil spill in the Gulf of Mexico, caused by a leaking BP Plc well, may cost the insurance industry as much as $1.5 billion in claims, according to Transatlantic Holdings Inc.
Transatlantic, the reinsurer divested by American International Group Inc., said its own costs from the spill may be less than $15 million, according to the company’s earnings conference call held earlier today. PartnerRe Ltd., the reinsurer that purchased Paris Re Holdings Ltd., faces claims of $60 million to $70 million, it said in a statement today.
The explosion and sinking last week of the Deepwater Horizon drilling rig left 11 of the 126-member crew dead. The oil spill, which originated about 130 miles (210 kilometers) southeast of New Orleans, is 600 miles in circumference and is leaking about 5,000 barrels a day, the U.S. Coast Guard said. That’s about twice the land area of Maryland.
Montpelier Re Holdings Ltd., a Bermuda-based reinsurer, may have costs tied to the explosion of as much as $20 million, Chief Underwriting Officer David Sinnott said in a conference call. Hannover Re, Germany’s second-biggest reinsurer, estimated a net loss of about 40 million euros ($53 million) from the accident, according to an e-mailed statement.
“As the size of the industry loss gets bigger, it would be more likely for us to pick up exposure,” Montpelier Re Chief Executive Officer Christopher Harris said in the call. The insurer holds contracts for the rig that may trigger two payments of $10 million each, the company said in a statement.
BP Bears Costs
BP, the biggest oil producer in the Gulf of Mexico, had leased the rig from Transocean Ltd. BP will bear the costs associated with the spill, which the U.S. government has declared an event of “national significance,” the Obama administration said.
Sixteen federal agencies responded to the spill and the declaration will open the way for more resources, Homeland Security Secretary Janet Napolitano said today at a White House briefing. “BP pays for all of this,” White House press secretary Robert Gibbs said at the briefing.
JPMorgan Chase & Co. analyst Michael Huttner had estimated the insurance-industry cost would be $1.6 billion, in a report dated April 23.
Insurers, including Transatlantic, Hannover Re and Montpelier Re, reported losses of at least $3.02 billion from the 8.8-magnitude earthquake that struck Chile in February. The quake was the world’s fifth-strongest in a century, toppling bridges, smashing factories and closing ports.
Insured losses may reach $8 billion, catastrophe modeler Eqecat said. The total cost of the earthquake may be almost $30 billion, President Sebastian Pinera told reporters in March.
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