October 27th, 2010

ExcEED Expectations for Deepwater Drilling Coverage

Posted at 5:00 AM ET

sweeney_ed_gcciEd Sweeney, Executive Vice President

The Deepwater Horizon event is likely to cause insured losses of at least USD1.5 billion, if indemnities hold, and USD3-4 billion if they do not. There is unquestionably an increased focus among industry participants on the financial and social risks of deepwater drilling and production.

As a result, many oil and gas operators are expected to acquire as much as USD1 billion of additional limit. To address the industry’s evolving needs, Guy Carpenter and AON Benfield are partnering to develop the required insurance capacity. This new product will be called ExcEED (Excess Energy Exploration and Development).

Capacity will be provided by insurers and reinsurers in a line slip, or consortium, which will offer up to USD1 billion of limit to offshore operators. All facility underwriters will participate on a several and not joint basis. This will be an “open facility” that is available to all interested buyers, regardless of broker.

ExcEED is intended to sit above limits available from existing capacity sources. Global coverage will be offered, but only in response to blowouts. Exclusions will be made for blowouts caused by windstorms, earthquakes or acts of terrorism.

The ExcEED product will be sold only to operators and co-venturers, not to contractors. As is standard practice, the limits and attachments offered by the facility will scale in proportion to each insured’s participation on the well.

Torus, with assistance from First Reserve, will serve as the lead underwriter. In addition to its internal expertise, Torus has consulted with PPI Technology Services, Cobalt International Energy, Deep Gulf Energy, and Wild Well Control Inc. in developing the risk selection and pricing criteria.

The estimated market for the ExcEED product and related limits bought include at least 107 exploration and production companies. On a conservative basis, the facility could write up to USD10 billion of total limits in its first year. This is a substantial opportunity for our industry, and an important one. For more information about the facility, please contact Demian Smith at DSmith@torusinsurance.com.

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