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12 12/10 M97/February 2018 Reinsurance
Chapter A3C Exploration and drilling

For the initial exploration and development of an energy risk, such as drilling an oil-well, the following
are the standard questions that would be raised:
• Name of principal and other insured parties.
• Description of all current and proposed energy exploration and development and producing
operations.
• Description of all discontinued operations for which cover is sought.
• The total estimate for the current year and next year, and actual for last year in respect of:
– annual payroll;
– annual receipts or sales; and
– the number of employees.
• A list and description of all claims and losses insured and uninsured during the past five years
involving the insured’s energy exploration and development operations where the total paid and
outstanding amounts, including legal costs and adjusters expenses, exceed US$100,000 or
equivalent.
• A schedule of insured’s proposed operations during the period of this insurance.
• Details of any directional wells which are drilled during the period of the insurance where the borehole
will deviate at least 80 degrees from the vertical.
• Details of any wells which are drilled during the period of insurance using ‘producing while drilling’
techniques.
• Details of any extended reach wells to be drilled during the period of insurance.
• Limits.
• Retention.
• Whether well out of control insurance is currently purchased.
• Previous insurance history.
• Name of the drilling contractors that the insured plans to utilise and contractor’s experience and loss Reference copy for CII Face to Face Training
record for the past five years.
Minimum deductibles of at least US$25,000 apply with underwriters imposing specific sublimits on
making wells safe and extended re-drills.
Business interruption may only be available in the market on a contingent basis except in exceptional
Limited earthquake
coverage circumstances. Limited earthquake coverage would also be normal.
Be aware
The Deepwater Horizon oil spill in the Gulf of Mexico was the largest accidental marine oil spill in the history of the
petroleum industry, and resulted from a sea-floor explosion on 20 April 2010. The explosion killed eleven workers on
the platform above and injured 17 others. The spill discharged 4.9m barrels of oil and caused extensive damage to
marine and wildlife as well as the Gulf’s fishing and tourism industries.

The US Government has identified responsible parties which it is holding accountable for all cleanup costs and other
damage. BP led the project and is a major contributor to the ‘set-aside’ of US$4.5bn for Clean Water Act fines and a
US$20bn compensation fund to victims.
As a consequence, the cost of insuring offshore oil rigs in the Gulf of Mexico increased significantly. Additionally,
reinsurers now demand greater transparency on renewals and more information on the direct market’s involvements
in excess liability placements.

Accumulations
Several peak risks may be relatively near to each other, as in the North Sea, and it would be unwise to
Additional business
interruption costs ignore the possibility of natural disaster affecting more than one unit in a single occurrence. Another
could be greater than problem is not just the substantial cost of the platform itself but additional business interruption costs,
the actual physical
damage where cover is granted, which could be greater than the actual physical damage.
Suitable types of reinsurance
Energy risks historically, have been placed in the marine department and this has continued to be the
case. However, a number of other lines can be involved too, and when rating these risks different issues
must be taken into consideration. With stationary objects there is a substantial element of engineering
underwriting to be considered as well as the industrial fire insurance perspective. As such many of the
energy risks have a very specific tailor-made design which is generally reinsured facultatively.