The eye of the storm


While the fallout from BP’s Deepwater Horizon oil spill has focused the minds of many captive managers, the wider industry has seen little effect. The main areas of contention revolve around collateral levels and domicile.

Energy company BP has now said that the final cost of paying the clean-up costs and compensation relating to the Deepwater Horizon oil spill tragedy in the Gulf of Mexico will total some $26 billion. Some believe ongoing compensation claims could still inflate this figure. The incident has focused the spotlight on the use of selfinsurance and captives among corporates.

BP uses a Guernsey-based wholly owned captive called Jupiter Insurance for the majority of its insurance arrangements. Jupiter is, in turn, often fronted by AIRCO , a unit of American International Group, which allows it to write business in places such as the US, where BP has operations.

According to ratings agency A.M. Best, Jupiter made a profit of $740 million in 2009 and it was expected to make more than $1 billion in 2010. Jupiter does not buy reinsurance coverage, but its maximum payout for any one event is also limited to $700 million—not much help when facing the kind of costs that BP is facing.

Insurance, Reinsurance, offshore energy, BP, AM Best, Gulf of Mexico, Jupiter Insurance, Captive insurance, Bermuda Insurance Management Association, Aon, ACE

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