MUMBAI: Oil and Natural Gas Corporation (ONGC) may have to pay higher premiums when its insurance policy comes for renewal on May 11. Last week, ONGC, which holds the country’s biggest insurance policy, had floated a tender to the underwriters to primarily cover its offshore assets worth $33.7 billion.
Given the recent spike in reinsurance rates, premiums for the new policy are likely to rise 15-20 per cent. Last year, ONGC paid $25-27 million to cover assets worth $32.6 billion.
United India Insurance Company has been appointed the lead insurer. Based on the technical bids submitted, the state-owned general insurance company has shortlisted four broking firms,Aon, MNDastur, Marsh and JWT, to help it secure cover from international reinsurers.
According to insurance officials, ONGC plans to purchase insurance through an ‘energy package policy’ for a ‘combined single limit’ (CSL) of $750 million across all sections. CSL is the most a company can claim for an accident from insurers. The package covers ONGC’s offshore production complexes, pipelines, rigs, specialised vessels and wells. It also covers operational risks and third-party liabilities.
The CSL is based on the value of ONGC’s single largest platform, Bombay High, estimated at about $850 million. Other platforms of the state-run oil company are priced at about $600-650 million or less.
“The oil company had increased the sub limit for ‘operators extra expense’ from $100 million to $150 million. This is the amount insurers would have to pay ONGC in case of a well-related accident. This has increased the risk perception of reinsurers,” said a source.
“The General Insurance Corporation of India (GIC), the designated national reinsurer, has emerged the lowest bidder, with a premium of $27 million. All other bids were in the region of $35-$45 million,” the source added.
Given the limited capacity for risks in India, over 80 per cent of the CSL is usually reinsured with reinsurers across the globe. “Since the major portion of the risk is placed in international markets, the terms and conditions, including the premium pricing, is developed by the reinsurance markets. So, prices are expected to rise this term,” said a reinsurance official.
Insurance experts feel GIC has quoted a very aggressive price and given the rise in pricing offshore risks globally, it would be interesting to see whether the international reinsurance market would support ONGC’s package policy at this price, with GIC as the leader.
In 2005, United India had had settled a claim for around $400 million (Rs 2,000 crore) to ONGC for losses on account of an accident in Bombay High North, under the offshore package policy. The accident caused a major fire, which severely damaged multipurpose support vessel ‘Samudra Surkasha’ and destroyed the whole platform.
Major hits global reinsurers took last year due to catastrophe claims may also aid the rise in reinsurance rates.
Last year was the worst in terms of claims, owing to catastrophes in Japan,Australia,New Zealand and Thailand. The total economic loss was pegged at $800 billion by global reinsurers. GIC Re had taken a hit of around Rs 1,800 crore in net worth, owing to unprecedented claims from these catastrophes.