Claims on Insurance Companies Related to Deepwater Horizon Incident

In an article in today's Wall Street Journal, losses related to the Deepwater Horizon incident are approximately $611 million to date, with...

Estimates for the total insured loss range from $1.4 billion to $3.5 billion, with Zurich-based Swiss Re so far having taken the hardest hit, estimating the catastrophe will cost it around $200 million.

High as it might be, the total insured loss will probably turn out to be only a fraction of the actual cost of the disaster.

The insurance industry "got lucky," because only around 20% of the losses incurred so far in connection with spill are being carried by the industry, said Stephen Catlin, chief executive of London-based reinsurance company Catlin Group Ltd., speaking at Euroforum's annual reinsurance summit in Zurich recently.

In contrast, billions of dollars in claims will be made in connection with the oil spill. But, as BP PLC, which is operator and majority owner of the project, self-insured much of the risk instead of buying liability insurance, losses for the insurance industry will be capped, credit rater Moody's Investors Service noted in a recent report.

Claims will come from many sources. Among them will be thousands of commercial fishermen and tourist companies whose businesses have been harmed by the oil spill off the Louisiana cost.

"In our view, potential business-interruption claims represent the largest unknown for insurers," Moody's said. But even in a worst-case scenario, they aren't expected to exceed $3.5 billion, the upper range of the estimate of industry losses.