S&P Affirms OIL’s ‘A-‘ Rating, Off CreditWatch; Outlook Stable

Standard & Poor’s Ratings Services announced that it has affirmed its “A-” counterparty credit and financial strength ratings on petroleum industry mutual insurer Oil Insurance Ltd. (OIL) and removed them from CreditWatch with negative implications, where they were placed on Aug. 31, 2005. S&P said the outlook on OIL is stable.

“This rating action reflects the decision of OIL’s board of directors to replace the capital lost from Hurricane Rita by instituting a premium supplement in the amount of $900 million,” S&P explained. “This is a result of the company’s determination that its total exposure to Hurricane Rita claims will increase substantially over the $396 million currently reserved.

“In September 2005, OIL’s board authorized an increase in 2005 provisional premium that increased 2005 premiums by about $800 million because of the $1 billion loss from Hurricane Katrina, of which 50 percent was collected during the first week in December 2005.”

S&P noted that the “loss payout from catastrophic events can take up to three years because of the company’s requirement that shareholders need to first expend monies to rebuild their damaged facilities prior to receiving reimbursement from OIL.” As a result, S&P said it “believes that the recent hurricane losses will not impair OIL’s cash or liquidity.”

“The ratings on OIL are based on its unique retrospective rating plan, its active capital management, and the strong credit ratings on its members,” stated S&P credit analyst Mohammed Ashab. “Partially offsetting these positive factors are its limited competitive position, aggressive investment philosophy, and volatile operating performance.”

S&P said it assigned a stable outlook because it “expects OIL to replenish its capital base above the $1 billion level by mid-year 2006.” In connection with this initiative S&P said it also “expects OIL to complete a capital-markets transaction to address the possible timing risk associated with paying losses sooner than premiums are collected under the company’s rating and premium plan by the end of the first quarter of 2006.”

S&P also noted that it would “consider revising the outlook to positive or raising the rating if OIL is successful in addressing the timing risk through a capital-markets transaction. On the other hand, the outlook could be revised to negative or the ratings could be lowered if there are any additional significant losses with no action taken by OIL to restore the company’s capital position or if the company is unable to implement the capital markets-transaction.”