Insight and Intelligence on the London & International Insurance Markets 24 Apr 2018

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Insurers anticipate $2.5bn Adnoc claim

  • John Hewitt Jones and Adam McNestrie 6 April 2018
  • The downstream energy market is expecting Abu Dhabi National Oil Company (Adnoc) to seek to push the claim for a refinery fire last year as high as $2.5bn, The Insurance Insider can reveal.

    This marks yet another substantial deterioration in the claim and would make the Adnoc fire one of the worst risk losses the insurance market has ever suffered if it is paid out in full.

    Total losses from the Ruwais refinery in Abu Dhabi, which was damaged by a blaze in January 2017, are set to hit $2.5bn after a jump in the cost of property damage at the refinery, according to sources.

    Adnoc has $2bn of property damage cover for the Ruwais facility.

    In addition, it is expected to press for a payout of $400mn-$500mn for business interruption losses on a policy relating to the nearby Borouge plastics facility, which has suffered knock-on effects.

    To secure a payout at this level, Adnoc would have to successfully contest the business interruption sub-limit.

    In January The Insurance Insider reported that the loss had deteriorated by as much as $1bn , and was nearing $2bn.

    Chubb is the main leader on the programme, which was placed by JLT across a range of different slips with dozens of carriers.

    The insurance programme has a central policy limit of $2bn, with a side tower providing up to $100mn of business interruption cover.

    While the property damage loss has edged towards the limit of the policy, Adnoc is contesting the $100mn BI sub-limit on the programme's side tower, sources confirmed.

    If Adnoc successfully dismisses the BI sub-limit, the cost of business interruption loss could escalate to between $400mn and $500mn, sources said.

    Carriers with major participations on the main $1bn xs $1bn layer of the programme include Qatar Re, which has a 10 percent lead line. The reinsurer also writes a 5.6 percent line on a $900mn xs $100mn slip, giving it gross exposure of $151mn to a $2bn loss.

    HDI has a 9.0 percent following line on the $1bn xs $1bn layer, with Scor writing a 7.5 percent lead line on the same stretch.

    Starr and Allianz Global Corporate & Specialty (AGCS) also have significant exposure via 7.5 percent lines written on a $1.99bn xs $10mn layer. A $2bn loss would leave each of them with a $149mn gross loss.

    Liberty Mutual has a 10 percent line on a $990mn xs $10mn placement, with QBE writing a 7.9 percent lead line on the same layer and Talbot 7.0 percent.

    Bahrain-based Trust Re leads a $900mn xs $100mn layer, which looks likely to be a total loss, with its 13.23 percent line producing a $119mn gross hit.

    Reinsurers are likely to absorb the majority of losses and the size of claim may push them to strengthen reserves.

    Initial loss estimates for the fire were as low as $400mn and $850mn .

    Adnoc, Chubb and JLT did not respond to a request for comment.

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