Hurricane Dennis, which abated somewhat as it made landfall in Florida may have done its worst damage offshore as it rampaged through oil well platforms, according to a knowledgeable insurance broker.
Bruce Jefferis, a managing director of Aon Natural Resources in Houston, said there is concern that Dennis, which was clocked at a category four hurricane with winds approaching 140 mph, could have done significant damage to the Gulf Coast energy infrastructure.
The huge Thunder Horse platform was reportedly listing 30 degrees and could be in some trouble, he said. Mr. Jefferis added that it is too early to tell how badly damaged it is or what would be done to repair the platform.
"What will happen to it, we don't know; they will probably right it, but [if they can't] it could make for a big loss to the market," Mr. Jefferis observed.
Last season's hurricane Ivan, which was the costliest hurricane in history, resulted in $2.5 billion in total insured losses for energy insurers, he said. Like Ivan, there may appear to be little damage to oil platforms and riggings, but pipeline damage from undersea shifts in terrain could be another story.
"Dennis took a similar path to Ivan, but a little further East, which is good," said Mr. Jefferis, noting that the further West a storm comes the closer it is to the bulk of the oil fields.
"It will be a few more days before we know the initial impact of Dennis on the properties, and maybe a few months before we really know the extent of the damage," Mr. Jefferis explained.
The major problem in determining the extent of damage is that much of the damage could be undersea. Inspection requires diving equipment, which is in limited supply.
One lesson for insurers coming out of Ivan is that the extent of connectivity between oil rigs and platforms through undersea pipelines was missed by both clients and underwriters.
"It was not understood as well and appreciated," he said. Since Ivan, there is now greater focus and understanding on the ripple effect from a damaged pipeline, both in terms of avoiding business interruptions and in forecasting the loss scenarios.
While capacity remains in the market since Ivan, energy production risks have not seen a softening in pricing, Mr. Jefferis noted. Good risks have seen a 20 percent increase in premiums, and clients with large losses have seen "significant" increases.
"Last year was an adjustment in pricing," noted Mr. Jefferis. "But Dennis could cause a whole other cycle."
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