NU Online News Service, July 28, 12:32 p.m. EDT

The explosion of the Deepwater Horizon rig in the Gulf of Mexicohas changed sentiment among energy underwriters and will likelylead to new market dynamics, according to a new report by insurancebroker Marsh.

However, the report, called "Energy Market Monitor," noted thatthe oil spill will not have the same market-changing impact on the"upstream energy" market--which writes exposures for theexploration and drilling of oil--as other major events.

Following Hurricane Katrina, for example, the market experiencedreductions in capacity and rate hikes, Marsh said.

But Jim Pierce, chairman of Marsh's Global Energy Practice,noted in a statement, "Capacity currently isn't an issue andinsurers seem keen to maintain their commitment to the market. Thisis good news for the industry."

The oil spill--because of the loss of life and the pollution ithas caused--will, however, lead to changes.

The report said operators' approach to deepwater drilling willbe severely impacted.

Marsh also said regulators will create stricter rules andregulations for offshore drilling, but noted it is too early todefine the new landscape.

Companies involved in the exploration and production of oil willscrutinize their current insurance programs in order to look intothe limits they purchase and the terms and conditions, the reportsaid.

"Some insurers have been capitalizing on their clients' concernsand have been hiking up their prices for higher limits anddeepwater drilling wells," Mr. Pierce said.

But price increases are likely to be modest in other parts ofthe upstream energy market, unless more major losses occur,according the report.

In addition, the report noted that the "downstream energy"market--which writes onshore risks for refining oil--remainsvirtually unchanged due to the absence of downstream losses.

Marsh said there were large rating reductions in this marketreported in the June renewals, and it anticipates reductions willcontinue in the July renewals.

The downstream energy market will barely be affected by the oilspill, since the market has an overabundance of capacity and issolely dedicated to writing onshore risks, the report said.