QBE INSURANCE has managed to sidestep the prospect of spiralling payouts linked to the Deepwater Horizon oil disaster in the Gulf of Mexico, reassuring investors its exposure to the spill is well-contained.
This continues QBE's run of luck when it comes to writing risks against global catastrophes. The insurance giant also avoided the full impact of a string of costly disasters this year ranging from earthquakes in South America to freak hailstorms across Australia.
QBE famously emerged as just one of a few global insurers to sidestep the full exposure to Hurricane Katrina, which hit the US gulf states in 2005, even though it had a substantial American commercial property book.
This year QBE has set aside $1.3 billion for payouts linked to large risk and catastrophe events, but it has spent only a third of this on claims despite this year shaping up as one of the most costly for the global insurance industry.
Hurricane Katrina ranks as one of the most expensive insurance events, resulting in payouts of more than $US41 billion ($49 billion).
While QBE provides insurance cover for oil rigs, it has told investors it had significant reinsurance protection in place for any claims relating to the disaster. This suggests QBE's liabilities to the spill - if any - will be capped given that global reinsurers would be picking up the tab for outstanding claims.
The Deepwater spill in the gulf is one of America's largest offshore spills. Since the blowout of the well on April 20, BP has struggled to contain the oil gushing into the gulf.
BP is self-insured against the accident, but it is locked in a legal battle over payouts from insurance cover held by the Deepwater rig operator Transocean. QBE is one of the 36 insurance syndicates that provide cover on the rig.
Analysts have estimated that the total insured losses from the disaster could reach more than $US3 billion, although some have forecast the final bill could run to double-digit figures.
Coming on the heels of IAG warning of a $425 million one-off charge related to rising claims in the British car insurance market, QBE said it had enough funds set aside to cover payouts.
British insurers have been paying out more on car accidents because of what the industry terms "claim-farming" - lawyers acting on a no-win-no-fee basis. This has led to more litigation and inflated injury payouts.
At the end of April, QBE named the Deepwater Horizon disaster as one of several that it had accounted for so far this year. They also include the Haiti earthquake, wind storms in Europe, the earthquake in Chile and savage hail storms in Melbourne and Perth.
Despite the mounting payouts, QBE said it still had $810 million in funds to cover further losses.
The spill is already causing substantial corporate damage for BP, the operator of the Deepwater Horizon oil rig.
BP has lost a third of its value, equivalent to $75 billion, since the explosion in late April, due to uncertainties about its exposure to the clean-up and what the potential compensation will amount to.
In London there is mounting speculation that BP could emerge as a takeover target or at least that it could be forced to seek merger talks with its European rival, Royal Dutch Shell.
June 3, 2010
Insured losses from Gulf of Mexico oil rig expected to be $US1.5 billion. QBE tells
investors reinsurance protection is in place.
April 28, 2010
Haiti earthquake, European windstorm, Chile earthquake, Melbourne hailstorm, oil rig loss, Iceland volcano travel claims. QBE tells investors claims are within
signifi cant allowance.
September 17, 2008
QBE has immaterial reinsurance exposure to US insurance giant AIG. Also reports no direct investment exposure to Lehman Brothers.
September 6, 2005
Insurance industry losses from Hurricane Katrina total $US41 billion. QBE tells investors its exposure is within allowance for large losses.
September 29, 2004
Insurance industry losses from four US hurricanes, including Hurricane Ivan, $US28 billion. QBE tells investors exposure is within allowance for losses.
December 20, 2004
QBE reports no material exposure to Asian tsunami. Tells investors expected claims
are within allowances for large losses.
September 28, 2001
Global insurance World Trade Centre losses total about $3.4 billion. QBE exposure is
$250 million.
September 13, 2001
QBE has $US2 million exposure to American Airlines airbus crash in New York.
Frequently Asked Questions about this Article…
How exposed is QBE Insurance to the Deepwater Horizon oil spill?
According to the article, QBE says its exposure to the Deepwater Horizon spill is well‑contained. QBE provides cover for oil rigs and is one of 36 insurance syndicates on the rig, but it has told investors it had significant reinsurance protection in place that should limit its direct liability.
What does QBE's reinsurance protection mean for investors?
The article explains QBE had significant reinsurance protection for claims related to the Gulf spill. In plain terms, global reinsurers would pick up much of any outstanding claims, which suggests QBE’s direct liabilities from the disaster would be capped — a key point for investors assessing QBE’s risk.
How much has QBE set aside for large risk and catastrophe events this year?
QBE has set aside US$1.3 billion for large‑risk and catastrophe payouts this year. The article notes QBE has spent only about a third of that provision so far, and it said it still had about $810 million available to cover further losses.
Could insured losses from the Gulf of Mexico oil rig disaster be much larger than early estimates?
Yes. The article reports analysts estimate insured losses could reach more than US$3 billion, while some forecasts suggest the final bill could run into double‑digit billions. The ultimate impact on insurers will depend on claims allocation, reinsurance arrangements and ongoing legal outcomes.
How has the Deepwater Horizon disaster affected BP’s market value and investor outlook?
The article states BP lost about a third of its value — roughly $75 billion — since the late‑April explosion, driven by uncertainty over clean‑up and compensation costs. There was also mention of market speculation that BP could become a takeover target or face merger talks with Royal Dutch Shell.
What role do Transocean and insurance syndicates play in the legal and insurance fallout?
The article says BP is self‑insured for the accident but is in a legal dispute over payouts tied to insurance held by the rig operator Transocean. QBE is one of 36 insurance syndicates that provide cover on the Deepwater rig, which factors into how claims and liabilities are apportioned.
What other catastrophe events has QBE already accounted for this year?
QBE has named several events it has accounted for so far: the Haiti earthquake, European windstorms, the Chile earthquake, and severe hailstorms in Melbourne and Perth. The article notes QBE said those claims were 'within significant allowance' and that it had funds to cover further losses.
What is 'claim‑farming' and how is it affecting insurers like IAG and the UK car insurance market?
The article describes 'claim‑farming' as lawyers operating on a no‑win‑no‑fee basis, which has led to more litigation and inflated injury payouts in the UK car insurance market. It notes IAG warned of a $425 million one‑off charge related to rising claims in Britain, highlighting the cost pressure on insurers.
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