S&P Outlook For OIL Insurance Ltd. Drops

Standard & Poor's Ratings Services has changed the outlook for Oil Insurance Ltd. to negative from stable while affirming it's "A-minus" financial strength rating.

The New York-based rating agency said it revised OIL's rating to negative because it is concerned about the stability of the company's membership base.

"As of Oct. 31, 2006, nine members (out of 83) had notified OIL of their intention to withdraw from OIL effective Jan. 1, 2007," explained S&P credit analyst Laline Carvalho in a statement. "The exiting members represent about 12 percent of OIL's weighted gross assets insured."

The withdrawals follow a difficult year in 2005 when OIL suffered unprecedented large losses of $2.8 billion and subsequently increased premium rates to collect an additional $1.7 billion in premiums from its members. The majority of this premium has been received by the company, with the remaining balance due December 2006.

S&P said it believes the recent exits partially reflect OIL's challenge to meet the different needs of its diverse membership base, which after a period of expansion over the last five years includes members with high severity/low frequency-type risks such as oil and gas companies, and members from sectors with higher frequency/lower severity-type exposures such as utilities.

Following its 2005 loss experience in the Gulf of Mexico from hurricanes, OIL temporarily lowered its aggregation limits to $500 million, from $1 billion, as a means of reducing volatility in its balance sheet.

However, S&P continued, OIL's management team may be challenged over the next couple of years to find an optimal mix of premium rating plans and aggregation limits it can offer to meet the needs of its membership. Achieving this would be very important in helping OIL maintain a more stable membership base, S&P suggested.

OIL is a mutual insurance company set up to insure oil and gas industry interests.

Early last week, S&P revised the rating on Bermuda-based Oil Casualty Insurance Ltd., another energy insurer created by energy companies that provides excess general liability to the industry, from "A-minus" to "triple-B-plus" with stable outlook.

OCIL said in a statement that it was "disappointed" with the S&P rating.