NU Online News Service

With millions of gallons of oil per day spilling into the Gulfof Mexico since April 22, threatening wetlands and fisheries andthe death of 11 crew members, the Deepwater Horizon disasterappears to be far from over and Moody's today put the current totalinsured loss estimate between $1.4 billion and $3.5 billion.

Moody's noted that insured losses would be significantly higherif BP plc, the operator and majority owner of the project, hadpurchased liability insurance in the commercial market instead ofself-insuring its risks through its captive insurer, JupiterInsurance Ltd., for property and liability coverages.

Moody's said the captive substantially reduces the exposure ofthe commercial reinsurance and insurance industry to the event. Andgiven the magnitude of the potential costs associated with theclean-up and other compensatory payments, Moody's said it ispossible that other parties found liable will exhaust the limits oftheir insurance policies, shifting any additional costs back to theproject participants.

Meanwhile, A.M. Best Co. said today it has revised the outlookof Jupiter to negative from stable. It affirmed the financialstrength rating of "A-plus (Superior)" and the issuer credit ratingof "aa-minus" of Jupiter, domiciled in Guernsey.

Best said the negative outlook reflects concerns over thepotential impact on BP from the ongoing oil spill. Given themagnitude of this event, Best said it is currently impossible toassess the impact on BP, in terms of both financial liabilities andreputational damage.

Because significant uncertainties are likely to remain for sometime to come, Best said it will continue to monitor thesituation.

Best also noted it considers that the financial position ofJupiter will likely remain strong following the incident. AlthoughJupiter has established loss reserves at its policy limit of $700million, risk-adjusted capital still soundly supports the ratinglevel.

Moody's observed in its report that claims from the disasterwill come from a number of lines, including: marine hull, marineliability, general liability, environmental/pollution liability,control of well, business interruption, D&O liability andworkers' compensation.

With several parties involved in the drilling work, dozens ofclass action lawsuits filed and the ultimate extent ofenvironmental damage unknown, the complexities associated with lossclaims are significant and could take many years to be resolved,Moody's noted.

Going forward, "we believe that this event will have ameaningful impact on the market for offshore energy-relatedinsurance coverages," Moody's said. The rating agency observed thatearly reports indicate that property coverages are 15-25 percenthigher for rigs operating in shallow waters and up to 50 percenthigher for deepwater rigs.

With hurricane season approaching, any additional losses in theGulf of Mexico this year could further bolster pricing for thissubclass. Likewise, Moody's continued, pricing for offshore energyliability insurance is sure to trend higher as insurers andreinsurers take stock of their losses and reevaluate the complexrisks associated with drilling in deep waters.

Several firms are involved in drilling the deepwater oil well atMississippi Canyon Block 252 in the Gulf of Mexico, Moody'ssaid.

These include:

o BP (operator and 65 percent working interest in theproject).

o Anadarko (25 percent working interest).

o Mitsui (10 percent working interest).

o Transocean (owner of the rig and drilling contractor).

o Halliburton and Smith International (drilling servicesproviders).

o Cameron International (manufacturer of blow-outpreventer).

In addition, Insurance Information Institute President RobertHartwig has put together a comprehensive PowerPoint presentation onthe insurance implications of the Deepwater rig disaster, availableat www.iii.org/presentations/Deepwater-060210/.