Catastrophic event modeling - 2. Industry exposure and value at risk to storms in the Gulf of Mexico

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Catastrophic event modeling - 2. Industry exposure and value at risk to storms in the Gulf of Mexico

Kaiser, Mark J. / Pulsipher, Allan G. / Singhal, Ajay / Foster, Thomas / Vojjala, Rajkiran

(Continued from issue 105 (2007) 45, pp 36-44) Offshore energy insurers have traditionally been defined by their willingness to take risk without relying on technical analysis to model or quantify their exposure. The 2005 hurricane season in the Gulf of Mexico changed this perspective, and underwriters are now attempting to control their exposure to contingent losses through policy sublimits, exclusionary wording, and other restrictions on coverage. In the second part of this two-part article, the losses to property damage in the gulf are quantified for historic weather events using the patented RMS Offshore Platform Model. Value at Risk measures indicate that the financial exposure of platform and rig assets in the gulf is on order of 60 to 70 Billion USD. Probabilistic scenarios from storm simulations indicate a 100-year loss estimated at 5.7 billion USD and a 270-year loss estimated at 7.5 billion for physical damage to platform and rigs not including business interruption and operator extra expense losses.