Captives Viewed As Value Proposition For Oil Companies

Oil company executives believe that creating a captive insurance operation to handle their risk could help the value of their operations, according to a brokerage' firm's survey.

The finding was contained in a report on the oil and gas industry from the insurance brokerage firm Marsh, a subsidiary of the New York-based services firm Marsh & McLennan Companies.

Based on a poll taken earlier this year of more than 400 senior national oil company executives at the National Oil Companies Conference in Dubai, the survey found that 62 percent of executives believe captives can add "significant value" to a national oil company, while the remainder said it could add some value.

Fifty-two percent said forming a captive would reduce the amount of premium paid to external markets, while 32 percent felt the benefit would be the ability to tailor wordings and contract conditions.

The remaining 13 percent said the primary benefits from a captive would be the ability to manage and handle claims and collect data associated with the risk.

The report noted that of all the industry groups throughout the world, oil occupies a very small portion of the international captive pie. Mining, metal and minerals occupy 3 percent of the global captive picture, according to Marsh.

Many oil companies have operated captives for a number of years, including Petro SA, Saudi Aramco, PDVSA and Kuwait Petroleum Corp, according to Marsh.

The report details the purpose and advantages of captives, noting that a national oil company may first set up a reinsurance captive until the entity becomes more familiar with captive operation.

Globally, Marsh said there are marked differences in captive insurance companies throughout the world. Parent companies in Europe, the Middle East and Africa favor the reinsurance captive structure more than other regions of the globe.

The full risk report is available at www.marsh.com.