NU Online News Service, June 30, 11:45 a.m. EDT

One catastrophe risk management firm said there is more than a40 percent chance that by the end of August, at least a tropicalstorm will pass over the spot where the Deepwater Horizon oil rigoperated by British Petroleum once drilled into the Gulf of Mexicofloor.

In a recent report, Risk Management Solutions (RMS) analysts also concludedthere is a 15 percent chance that by the end of July, a tropicalstorm or hurricane will pass within 100 miles of the Macondo oilwell BP was using before an explosion in April sunk the rig andkilled 11 workers. The well continues to spew oil into Gulf.

There is a 13 percent chance that a hurricane will pass over theoil slick now floating in the Gulf of Mexico, and a 7 percentchance of it being an intense hurricane, defined as Category 3 orabove, RMS said.

The disaster at the Macondo field will become a "de factoprobable maximum loss," meaning the oil spill will have a"long-lasting impact on offshore energy insurance availability,rates and coverages," RMS said.

Contract terms will likely be revised, rates are reportedlyalready higher, and the event has been at the forefront of thepolitical agenda, RMS said.

"The more punitive the situation is made, the more difficult itwill be to conduct offshore deep drilling in the future," saidRobert Muir Wood, chief research officer at RMS.

In forcing BP to set up a $20 billion fund to pay claims andrequiring BP to compensate laid-off oil workers, the federalgovernment is "pressing extralegal remedies that will raise theassessed political risk around future natural and manmade U.S.catastrophes," the report said.

Much depends on the outcome of litigation between BP and otherpartners in the oil drilling operation.

BP, which is self-insured by a captive insurer it formed, had a65 percent stake in the Macondo field. The captive, JupiterInsurance Ltd., has about $6 billion in capital with noreinsurance.

Estimated insured losses related to the event are between $1billion and $3.5 billion, according to the Insurance InformationInstitute (I.I.I.). Companies with exposure to the oil rig areinsured for losses of about $1.4 billion, the institute hasreported.

In addition to the possibilities of rate increases and moreregulatory oversight, I.I.I. President Robert P. Hartwig recentlytold Congress a hike in damage limits could stop drilling in U.S.waters. Lawmakers have proposed an increase in the limits forenvironmental liability from an oil spill from the current $75million up to $10 billion. Mr. Hartwig said the amount is beyond the capacity of theindustry to handle.