THE OIL INSURANCE LIMITED (OIL) COMPANION 2017 · analysis of OIL membership from a broker’s perspective. It examines ... • Terrorism wording was modified to improve clarity but

Energy & Power Practice

THE OIL INSURANCE LIMITED (OIL)COMPANION 2017A COMPLETE GUIDE TO THE BERMUDA BASED MUTUAL

CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2017 News Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Coverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Automatic Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Limits and Deductibiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Rating and Premium Plan (R&PP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Prospect Premium Indications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Considerations for Membership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Membership Application Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Contractual Premium Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

OIL Occurrence Trigger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Designated Named Windstorm (DNWS) Occurrence Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Designated Named Windstorm (DNWS) Coverage Restrictions and Premium Obligations . . . . . . . . . . . . . . . . . . . . 25

Windstorm Coverage in Other Geographic Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

General Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Non-Owned Property Sublimit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Notice of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Claim Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Offshore Pollution Liability Agreement (OPOL) Endorsement (and OPOL Certification) . . . . . . . . . . . . . . . . . . . . . . . 29

SPLIT Policies and Policies by Geographic Region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Ventilated (SPLIT) Limit Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

OIL Endorsement No.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Frequently Asked Questions (FAQs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Marsh • 1

INTRODUCTIONMarsh’s OIL Companion offers a balanced, objective, and in-depth

analysis of OIL membership from a broker’s perspective. It examines

both the advantages and possible disadvantages that merit

consideration in the evaluation of OIL membership.

For in-depth analysis of OIL, its underwriting methods

and full coverage specifications, plus company

financials and literature, including full details on all

changes, we recommend that you visit www.oil.bm

which is the official OIL website.

The website contains the most up-to-date information

and has been a valuable source for much of the

information used in compiling this OIL Companion.

Finally, and most importantly, Marsh strongly

encourages any party with an interest in or

engagement with OIL (be that clients, prospects,

or insurers) to register for the OTA (OIL Technical

Accreditation) online training program which

can be accessed through the OIL website.

Marsh • 1

2 • The OIL Insurance Limited (OIL) Companion 2017

2017 NEWS UPDATEOIL’s strategic plan was approved by the board at its December

2016 board meeting. The plan was conceived in order to further

enhance OIL’s worth and appeal to members and prospects alike.

The final agreed upon initiatives focused upon three key areas

with the following objectives:

• Product Offering: enhance products available.

• Member Services: enhance value proposition by delivering

additional services to members.

• Marketing & Distribution: increase membership by delivering

OIL capabilities to a wider audience, with a particular focus on

the US utility sector.

The process will evolve over the next few years and to this end

OIL intends to work collaboratively with various stakeholders,

including brokers, who are contributing to membership of an

advisory panel.

Further announcements will no doubt follow in due course.

Other significant points of note as we look back at the past year

are as follows:

• OIL has agreed to extend indefinitely the option for members

to select standard limits of between US$300 million and

US$400 million so offering members more flexibility. From

January 1, 2018 a member will no longer need to warrant to

OIL that they are not purchasing any other insurance excess of

OIL as long as they have at least US$300 million limit from OIL.

However, for limit purchases below US$300 million a warranty

will still apply.

• Insuring Agreement 3 (third party pollution liability) was

amended to specifically address coverage for third party

pollution liability in pipeline “Right of Ways”.

• 1st quarter premium instalment due date was moved to mid-

February to ease pressures around end of year and 2nd quarter

invoice was deferred for payment in May.

• Sanctions exclusion has been modified to align with recent

pronouncements from The Office of Foreign Assets Control

(OFAC), effective January 1, 2018.

• Terrorism wording was modified to improve clarity but

potentially this has also restricted scope - previously covered

an act committed for political, religious, ideological or other

purposes but is now restricted to other similar purposes.

• Two new members joined during 2016 but two other members

withdrew at the end of the year so the membership count

stabilized at 54.

• At its December 2016 board meeting, OIL declared a

second dividend for the year of US$200 million (payable to

shareholders on record as of December 8th, 2016 on or before

December 31st, 2016). This was in addition to the US$200

million dividend that was paid in June of the same year. OIL

confirmed that the payment was made in response to its strong

capital position and robust capital management plan.

• At its March 2017 AGM shareholders approved minor changes

to the Rating & Premium Plan (R&PP) including a change to

classify piers, wharves, jetties and docks as onshore assets

which is more consistent with commercial market practice.

The OIL board of directors also elected Roberto Benzan as

Chairman of the Board and Theo Guidry as Deputy Chairman.

• Following on from the above point, OIL also declared a further

dividend of US$250 million for shareholders on record as of

January 1st, 2017 (payable on or about June 30th, 2017). At the

AGM, Bertil C. Olsson, President & CEO, commented that

“Oil Insurance Limited is committed to providing long term

value to its membership by offering significant policy limits

with broad terms and conditions, returning excess capital

by way of premium credits and dividends when appropriate

as well as potentially considering additional coverages to

enhance the overall value proposition of being a member.”

Finally however, and in a significant development, OIL announced

that Offshore Gulf of Mexico Designated Named Windstorm

(DNWS) coverage will be eliminated from January 1, 2018.

At the time the decision to eliminate Offshore Gulf of Mexico

DNWS coverage was taken only 4 members had actively

selected this coverage option creating a small and potentially

volatile risk pool. It is not surprising therefore that OIL had to

either revise the pool mechanism or eliminate the coverage

entirely. They have chosen the latter option presumably as the

option of least disturbance.

Marsh • 3

Whilst it adds a little more complexity to the OIL

model it has little impact on the ongoing insured risk

exposure of the mutual due to the limited take

up (although it does mitigate the potentially

heightened member credit risk that existed with

an unbalanced pool).

We note that OIL will continue to offer windstorm

coverage in “all other Onshore and Offshore areas

of the Atlantic Basin and the World”. Onshore Gulf

of Mexico DNWS cover will therefore continue (with

Docks, Piers and Jetties defined as Onshore Assets)

but there has to be some question mark over the long

term existence of this coverage. In any discussion

of OIL “pros and cons” we should now consider the

potential for OIL to restrict or withdraw coverage if it

experiences low demand in a particular risk category

or sector.

Note: Any OIL member with an insurance program

renewing into 2018 and that is “wrapping around”

Offshore Gulf of Mexico DNWS coverage will need

to consider mid-term adjustments to their program.

However as most members opt out of the Offshore

DNWS pool (select the default profile) this will not

impact many members.


Marsh • 5

BACKGROUNDOIL is a mutual insurance company serving the wider “energy”

industry (including power, mining and chemical operations).

Membership of OIL is governed by the OIL Shareholders’

Agreement which is a binding contract between OIL and its

members. The Shareholders’ Agreement contains the standard

OIL insurance and reinsurance policies, byelaws, and the Rating

& Premium Plan. The Rating & Premium Plan is the post-loss

funding model utilized by OIL. It is designed to collect 100% of

incurred losses (excluding “incurred but not reported” losses)

from members over a five year period; therefore, OIL does not

take underwriting risk in the traditional sense.

Repayment Schedule:

Some quick facts and figures:

• Established in 1972.

• Estimated Unmodified Gross Assets (UGA) insured in the

region of US$3 trillion (at January 1, 2017).

• Shareholders’ equity in the region of US$4 b illion

(at March 31, 2017).

• Total assets in the region of US$7.5 billion (at March 31, 2017).

• 54 members (domiciled in USA, Canada, Europe, Australia,

Asia, and Latin America/Caribbean as of June 1, 2017).

• Rating philosophy designed to fully fund past losses over time

(past losses = future premiums = past losses).

• Standard & Poor’s (S&P) rating (financial strength) A- (stable),

Moody’s A2 (stable) as of May 2017.

• OIL is currently not reliant upon reinsurance (fundamental

principle – to be an alternative to the commercial market).

MEMBERSHIP

BY INDUSTRY

SECTOR

E&P

Integrated Oil

R&M

Chemical

Pipelines

Utilities

Mining

Other

27%

25%

18%

9%

7%

2%

2%

10%

MEMBERSHIP

BY HEADQUARTER

LOCATION

USA

Europe

Canada

Australasia

Asia

Caribbean

50%

29%

12%

5%

2%

2%

20

2013

20

20

20

20 2016

20

2014

20

20

20 2015

20

20

2015

20

20

20

20

20

2016

20

20

20

20

20 2012

2017

Premium Payment Year

2016

2012

2017 Annual Premium = Loss Year yr x pool % yr x 20%

2018 2019 2020 2021

20

20

20

20

Cu

mu

lati

ve

Lo

sse

s (%

)

Data accurate as at August 1, 2017


ELIGIBILITYEligibility requirements are rigorously enforced and only

companies that are defined as an “Energy Company” are

eligible for membership. In addition to traditional upstream and

downstream oil and gas exploration and production, refining

and marketing operations, the definition of “Energy Operations”

extends to electric utilities/power generation, pipeline, chemical

(including pharmaceutical),and mining operations.

To be eligible for membership, at least 50% of “UGA” must be

devoted to, or 50% of annual gross revenues must derive from,

“Energy Operations”.

Additionally, certain criteria have to be met (and in many cases

maintained) to qualify for OIL membership:

Minimum US$1 billion of UGA (Property, Plant and Equipment

(PP&E) before depreciation, depletion, or amortization, plus book

value of inventories).

• Minimum credit rating of either BBB- (S & P) or Baa3 (Moody’s).

• Companies without external credit ratings can obtain a

“shadow rating” or submit to financial analysis by OIL and may

be required to post acceptable security (for example, a letter of

credit (LOC)).

• Acceptable 10-year loss history (losses greater than

US$5 million reported on a ground-up basis).

• Business operations that represent an appropriate spread of

risk and fit within a mutual framework.

• All of the applicant’s energy operations must be covered by OIL

unless specifically agreed by OIL.

• Demonstrated track record of maintaining world-class health,

environment, and safety standards.

Note: Despite the minimum requirement for US$1 billion of UGA,

in order to qualify for the full US$400 million OIL limit UGA will be

deemed at US$4 billion for premium purposes.

Existing members whose credit ratings fall below established

minimum criteria must post acceptable security (usually a LOC)

and/or pay their premium annually (up front).

All applications must be approved by OIL management. New

members are not permitted to amend their selected coverage profile

for three years other than with the specific agreement of OIL.


Marsh • 7

COVERAGESPRINCIPAL RISKS INSURED INCLUDE:

• Physical damage to property. Basis of recovery is Replacement

Cost but if property is not repaired or replaced the claim

is settled on a Depreciated Cost basis (Depreciated Cost

= Replacement Cost less a deduction for depreciation and

technological, functional, and economic obsolescence).

• Terrorism (including cyber terrorism).

• Riots, strikes, or civil commotion.

• Well control costs.

• Well restoration and redrilling costs.

• Pollution liability (legal, including punitive damages, or

contractual liability for third party property damage or

personal/bodily injury).

Note: Coverage is provided on a “sudden and accidental”

basis (40 days discovery/120 days reporting) for Occurrences

commencing on or after January 1, 2006 or date of OIL entry,

whichever is later. It should be noted that “gradual tail” (non-

sudden and accidental) cover for prior Occurrences remains

available for members who elected broad form pollution

coverage prior to January 1, 2006. All members of OIL

including those insured on a “sudden and accidental” basis

(i.e. all post 2006 members) are still pooling losses with the

“gradual tail” members.

• Clean-up expenses (reasonable and necessary expenses

incurred to mitigate further injury or damage that would

otherwise arise).

• Offshore Pollution Liability Agreement (OPOL) certification

(where applicable).

• Debris removal costs.

• Sue and labor expenses (including general average and

salvage expenses).

• Cargo.

• Construction (some limited conditions – contractors or project

lenders cannot be named as additional insured parties).

Note: OIL has confirmed it will eliminate Offshore Gulf of Mexico

DNWS coverage from January 1, 2018.

It should be noted that apart from Designated Named Windstorm

(DNWS) and non-owned property not included in a member’s

UGA declaration and not used in the operations of the member,

none of the coverages provided by OIL are sub-limited and

therefore the full limit of the OIL policy is available for all perils/

coverages (including earthquake).


PRINCIPAL EXCLUSIONS ARE: • War (excepting terrorism) and political risk (confiscation

or expropriation).

• Nuclear (applies to (i) the “Hot Zone” of any nuclear facility

or portion thereof or (ii) any loss, damage or expense arising

out of or resulting from…nuclear reaction or nuclear radiation

or radioactive contamination…etc. Refer to OIL policy for full

exclusion but OIL does provide cover in the “Cold Zone”).

• Oil in the ground, (prior to recovery).

• Land, land values (other than land alterations or processed water).

• Loss of hire.

• Business interruption.

• Waste site pollution liability (commercial).

• Products and completed operations liability.

• Tanker pollution liability (except charterers’ liability).

• Third party liability (other than pollution liability).

• Fidelity (dishonest or fraudulent acts but exclusion does not apply

to physical damage caused by employee sabotage, vandalism or

other willful and malicious destruction of tangible property).

• Defective part.

• Wear and tear (does not apply to collapse of the property,

or a material part thereof, or resultant loss or damage to

other property).

• Loss of hole (direct physical loss or physical damage to insured

equipment in hole is covered).

• Transmission and distribution (T&D) lines above ground

(1,000 meter exemption).

• Economic and trade sanctions.

Note: OIL is unable to provide cover for any operations which

may breach sanctions (and sanctionable assets are to be

identified on the annual Unmodified Gross Asset declaration).

The applicability of this exclusion will be determined “at the

time of loss” once all the facts and circumstances surrounding

a claim are known.

• Watercraft.

Note: Floating production storage and offloading systems

(FPSOs) are not excluded (not considered as “Watercraft”)

but pollution liability for FPSOs is only provided if the FPSO

is “secured at site” for the production, storage, or processing

of hydrocarbons at time of the Occurrence. No cover for off-

station pollution liability (routine maintenance or repair transits

or for transportation of cargo) other than for emergency

breakaways/reasonable responses to emergencies (causing

disconnect) which are the only circumstances in which off-

station pollution liability cover will be afforded for FPSOs.


Marsh • 9

AUTOMATIC COVERAGEOIL’s coverage is either automatic or subject to additional criteria, depending upon the circumstances.

AUTOMATIC COVERAGE:Worldwide Coverage for an Energy Company and its consolidated

subsidiaries/affiliates (except where sanctions apply).

A member’s interest in a joint venture or other non-consolidated

(or partially consolidated) affiliate (if interest is less than 1% of UGA).

Coverage for non-owned assets where a member has a

contractual obligation to repair/replace (or which are in the care,

custody, or control of the member).

COVERAGE SUBJECT TO ADDITIONAL CRITERIA:A member’s interest in a joint venture or other non-consolidated

(or partially consolidated) affiliate (if interest equates to greater

than 1% of UGA), subject to a declaration of the assets to OIL for

premium purposes and written approval by OIL.

Coverage may be extended to non-OIL member third party

interests (for example, joint venture partners) subject to OIL

guidelines (which includes a requirement to enter into an

indemnification agreement with OIL in respect of claims that may

be brought by such third party interests) and written approval by

OIL. For the current guidelines please refer to the OIL website.

Note: Coverage for a joint venture or other non-consolidated (or

partially consolidated) affiliate is only permitted if the interest to

be insured is not otherwise insured under another OIL policy.

LIMITS AND DEDUCTIBLESFor all coverage provided by OIL, including (currently) all non- DNWS

windstorm coverage, the limits and deductibles are as set out below.

However, specific limit and deductible conditions (restrictions) apply

to DNWS coverage and these are highlighted separately.

Note: Designated Named Windstorm (DNWS) currently equates

to a Named Windstorm originating in or migrating into the Atlantic

Basin DNWS region only (Gulf of Mexico/Caribbean/ US Gulf

Coast and US East Coast onshore, etc.), formerly known as an

“Atlantic Named Windstorm” or “ANWS”, but other regions could

potentially be included as DNWS regions (subject to coverage and

limit restrictions) if triggered by future windstorm loss activity.



In this Companion we focus on the windstorm coverage and limit

restrictions as they currently apply to the Atlantic Basin DNWS region.


LIMITS (CURRENT 2017)

OCCURRENCE LIMIT

US$400 million (for interest).

However

DNWS Occurrence limit is restricted to US$150 million (60%

quota share part of US$250 million).

Limits are also restricted to the lesser of 10% of a member’s UGA

or US$400 million, although a member can purchase “excess

limits” up to the maximum US$400 million Occurrence limit or

US$150 million (part of US$250 million) DNWS Occurrence limit

specified above by declaring UGA deemed at US$4 billion.

Note: OIL imposes a sublimit of US$50 million (for interest) for

non-owned property which is (i) not included in a member’s UGA

declared to OIL and (ii) which is not used or intended for use in

the operations of the member.

INDIVIDUAL MEMBERS’ ANNUAL AGGREGATE LIMIT

Not applicable. OIL does not impose an annual aggregate limit.

However

A DNWS annual aggregate limit of up to US$300 million (twice

the DNWS Occurrence limit selected) applies for each member.

JOINT VENTURE LIMIT

Not applicable – limits are not scaled to interest and recoveries

are only restricted by:

1. Members’ individual Occurrence limit.

2. Members’ DNWS annual aggregate limit.

3. Aggregation Limit, as applicable (see following page).

OIL $400M OIL $400M OIL $400M

OIL

$150M

Part of

$250M

60 %

RE

TA

INE

D /

MA

RK

ET

/

RE

TR

O L

IMIT

%


Marsh • 11

AGGREGATION LIMIT

US$1,200 million (all insureds combined).

However

DNWS Aggregation Limit is restricted to US$750 million.

Aggregation Limit is shared between all members per Occurrence

(for example, major earthquake or major windstorm). However,

each member is still limited to their individual Occurrence limit

or DNWS annual aggregate limit as applicable. The effect of this

condition is potentially to reduce an individual member’s OIL

recovery in any given Occurrence, if that Occurrence affects

more than three members (or more than five members for

DNWS).

FLEXIBLE LIMIT

Limits can apply as primary, excess, or quota share and may be

ventilated (split).

Different limits are allowed on a Sector-by-Sector basis.

Members can select a reduced limit (minimum US$100 million or

US$60 million quota share part of US$100 million for DNWS).

If less than full limits are purchased, OIL may, at its discretion,

impose a warranty relating to the absence of any other insurance

(i.e. prohibiting insurance purchases from other insurers in

conjunction with the reduced OIL limit). Currently OIL does not

apply the warranty to windstorm limit selection.

Note: If the full US$400 million is not purchased, the warranty

relating to the absence of other insurance will be waived for

limits between US$300 million and US$400 million. However, a

warranty will still apply to the first US$300 million if a member

does not buy that entire limit.

Members can purchase ventilated (or split) limits subject to

approval by OIL. Splitting the limit into layers (using part of

the limit on a high excess basis) allows members to avoid the

warranty regarding the absence of other insurance (for selecting

less than US$300 million OIL limit). OIL will also allow the layers of

a ventilated limit to be arranged with different coverage profiles

(100% limit versus external quota share limit, for example).

Note: Endorsement No. 5 (Schedule of Excess Insurance) will

need to be adjusted to reflect split limits.

OIL USD

400M

Commercial Market

USD 400M

OIL Deductible

elpmaxE ’ssecxE‘elpmaxE ’yramirP‘

‘External’ Quota Share Example(USD 800M)

‘Internal’ Quota Share Example

OIL allows either 10%, 20%, 30% or 40% Internal Quota Share.

OIL USD 400M

Commercial Market Placement

Retention

60% of

USD 400M OIL

40%

Commercial Market

OIL Deductible

Commercial Market Excess (if required)

OIL USD 400M

OIL Deductible


Marsh • 13

DEDUCTIBLES (CURRENT 2017)

MINIMUM DEDUCTIBLE

US$10 million (100%) per Occurrence.

Deductibles scale to interest subject to a minimum of US$1 million

(for interest) per Occurrence. Different deductibles can be selected

for different Sectors.

However

DNWS minimum deductibles are subject to OIL agreement and

do not scale to interest.

New members may potentially be subject to a higher minimum

deductible than US$10 million depending upon their 10-year loss

history and their current exposures.

HIGHER DEDUCTIBLES

Higher deductibles are allowed on a Sector-by-Sector basis in

increments of US$5 million. Deductible credits are given up to a

maximum attachment point of US$750 million or US$2.5 billion

for DNWS.

If higher deductibles are selected, OIL may, at its discretion,

impose a warranty relating to the absence of underlying

insurance (i.e. prohibiting the purchase of underlying insurance).

To date, OIL has never exercised that right.

DEDUCTIBLE APPLICATION

A single Occurrence involving multiple Sectors attracts only

the highest deductible (losses eroding the highest deductible

applicable to any one Sector are also applied to erode or exhaust

the deductible amount applicable to any other Sectors involved

in the same Occurrence).

However

The highest single deductible methodology only applies to the

eight Sectors (not DNWS).

For DNWS Occurrences, onshore losses will only erode onshore

deductibles and offshore losses will only erode offshore

deductibles on a separate and distinct basis.

Members are allowed to make coverage (limit/deductible profile)

changes during the policy year subject to 30 days notice and

consent by OIL , but only in certain circumstances such as an

asset sale or merger or similar non-recurring event..

RATING AND PREMIUM PLAN (R&PP)It is important to understand that the OIL premium calculation

(premium model) is different from that which applies to the

wider commercial market. Premium is derived from OIL’s R&PP.

This is a formula driven rating plan based on members’ UGA

(as derived from audited balance sheet – not insured values),

adjusted with credits/debits for operational risk and coverage

(limit/deductible) profile (to produce Weighted Gross Assets –

see detail below), and the five-year mutualized loss history of

OIL. There is no individual underwriting as such but individual

premiums may be subject to Experience Modification (EM) as

explained later in this Companion. The intention is to provide a

five-year post loss funding facility (fund past pooled losses) on a

mutual basis.

The R&PP sets out the method of premium calculation, known as

the Lock-In Plan, and details of the plan are discussed below.

UNMODIFIED GROSS ASSETS AND SECTOR WEIGHTINGAs stated above, a member’s premium is dictated by their

UGA weighted according to their risk and coverage profile. OIL

Weighted Gross Assets are generated as follows:

• UGA are taken from an audited balance sheet (not schedules

of insured values).

• UGA equate to the gross value (historical cost) of Property,

Plant and Equipment (PP&E) before depreciation, depletion,

and amortization, plus book value of inventories, materials,

and supplies.


• UGA are adjusted for operational risk (Sector weighting) and

coverage (limit/deductible) profile to generate Weighted

Gross Assets used to calculate the Pool Percentage and

individual premiums.

The R&PP recognizes differences between low or high risk

operations by way of a weighting of UGA depending upon Sector

(as defined by OIL) and variations in limit/deductible credits

(depending on Sector).

The UGA are allocated across Sectors as follows:

• Offshore Exploration & Production (E&P).

• Onshore E&P.

• Refining & Marketing/Chemicals.

• Pipeline Operations (pipelines physically located offshore are

included in Offshore E&P).

• Pharmaceuticals.

• Electric utilities.

• Mining.

• Other (any UGA not falling within the foregoing categories).

Note:

A. Members are required to identify sanctionable assets on the

annual UGA declaration. These assets, identified by country

and business sector and signed off by an officer of the member

(or prospect) will be deducted from the total asset declaration

and will not be included for premium purposes.

B. For oil sands operations, assets declared are to be split

between the Onshore E&P, Refining & Marketing/Chemicals

and Mining Sectors depending upon the stage of the oil sands

extraction process to which the assets relate.

Sector weighting factors apply to the UGA within each Sector,

which are then further adjusted for coverage profile (limit/

deductible weighting factors) to produce Weighted Gross Assets.

The weighting factors are adjusted annually.

Note: Sector weighting does not apply to the two excess

windstorm pools. These pools use deductible and operational

area risk weighting factors applied to the UGA to produce

Weighted Gross Assets used for Named Windstorm Excess

Premium calculation.

Therefore, as part of the UGA declaration process (due June 30

each year), the balance sheet UGA (as defined) must be allocated

by Sector and certified by an auditor. This includes specific

declaration requirements for UGA that are within the Atlantic

Basin DNWS Geographic Region.

Note: The DNWS declaration requires sign off by an officer of the

member or prospect (it does not need to be audited).

STANDARD PREMIUM (POOL A)The Standard Premium (Pool A) is the premium obligation

associated with purchasing 60% of the selected limit. It is

mandatory, paid by all members, and is governed by members’

discrete (historical) percentage shares of the unfunded loss pool

(Pool Percentage) for each of the past five years (during which

time the loss pool was generated).

In very simple terms, a member’s premium obligation is

determined by calculating their individual Pool Percentage

(member’s Weighted Gross Assets relative to total Weighted

Gross Assets) for each of the past five years. A member’s final Pool

Percentage in any given year is calculated using the UGA reported

as of December 31 from the prior year. The Pool Percentage once

calculated for any given year is locked-in. A member’s premium is

a function of their Pool Percentage and the unfunded loss pool for

each of the past five years (contributing to annual premium at 20%

per year) and is locked-in irrespective of a me

For example:

Weighted Gross Assets will be higher for a US$10 million

retention than a US$100 million retention - weighting credit given

for higher retention. Despite reduced Weighted Gross Assets in

future years, a member’s obligation for past losses is ‘locked in’

for the US$10 million retention years

Note: If a member exceeds 30% of any pool, OIL will require pre-

loss collateral against the member’s contingent liabilities (future

premium obligations) for that pool. This will most likely be in the

form of a LOC.

Current or future Weighted Gross Asset profiles have no bearing on

current annual premium. If a member makes risk profile (Weighted

Gross Asset) changes, such changes do not alter their retrospective

Pool Percentage (of the loss pool/premium obligation) only

their future Pool Percentage (and therefore their future premium

obligations). Annual premium, therefore, takes five years to fully

reflect coverage profile (Weighted Gross Asset) changes.

The Standard Premium is intended to fund 60% of the past losses of

the mutual or, looked at another way, fund 60% of the selected limit.

Marsh • 15

NAMED WINDSTORM EXCESS PREMIUM

Named Windstorm Excess Premium is paid by members of the

excess windstorm pools with exposed windstorm assets and is

determined separately based on losses (in excess of the US$300

million annual aggregate Pool A retention) that are allocated to

the excess pools.

Premium is calculated using the Lock-In method, with individual

Pool Percentage shares based on Weighted Gross Assets exposed

in the relevant geographic region. Currently, this premium only

applies to members with assets located in the Atlantic Basin

DNWS Geographic Region.

This region currently includes the Gulf of Mexico (GoM), Caribbean,

eastern seaboard states (ESB) of the USA, and Trinidad and Tobago.

However, with the exception of the GoM and ESB states, the other

areas have historically not produced losses to OIL and therefore are

currently not subject to Named Windstorm Excess Premium. This

exemption is achieved by way of a zero DNWS operational area risk

(weighting) factor which discounts assets in those areas. However,

it is important to note that such assets are still subject to the DNWS

limit and deductible restrictions.

Members without exposed windstorm assets will have 0%

share of the excess windstorm pools and no Named Windstorm

Excess Premium.


DNWS coverage and excess premium pool from January 1, 2018.

ADDITIONAL PREMIUM OPTIONS FOR THE REMAINING 40% OF THE LIMIT

All members must participate in the mandatory Standard

Premium (Pool A), but given that it only funds 60% of past losses,

members then have a choice of options to fund the remaining

40% of such losses.

In simple terms the choices for the remaining 40% of the limit are:

• Standard Premium Only option: Pay the Standard Premium

and only recover 60% of losses from OIL, that is, retain 40% of

own losses (retain US$160 million part of US$400 million limit)

for all Occurrences (or place quota share in the commercial

market to protect the retained amount).

• Flat Premium option (Pool B): Premium (calculated on same

basis as Pool A above) is intended to fund 10%-40% of past

losses (fund US$40 million-US$160 million part of US$400

million limit). Note: This option is not applicable for DNWS

losses; as such losses do not flow through Pool B.

• Retro Premium option: An additional premium to be paid by

members, but only if they actually sustain losses, that is, Retro

Premium adjustment on their own losses (i.e. no mutualisation).

Premium is intended to repay 10%-40% of their own losses over

five years (Retro Premium repayment on a straight line basis in

equal installments). The Retro Premium option is a substitute or

replacement for the Flat Premium option described above. This

option is available for DNWS losses.

Under the Lock-In Plan, members have the ability of selecting

different premium options for each Sector in any combination of

the three options available.

Premiums are payable quarterly (except where a member falls

below the minimum credit rating or a LOC is provided to support

eligibility; then premiums are payable annually in advance).

Mandatory

FLATPREMIUM

PLAN

RETROSPECTIVE

PLAN

PARTICIPATION

MUTUALISATION

OF 60% OF ALLPOLICY LOSSES

STANDARD

PREMIUM

ONLY PLAN

NO

ADDITIONAL

COVERAGE

40% OFREMAINING

POLICY

LOSSES

60% of all losses

are shared among

the entire

membership;

it is mandatory

that all members

participate in the

Standard Pool

56(as of December 31st, 2016)

DESCRIPTION


FLAT PREMIUM OPTION (POOL B)

The alternative to individual Retro Premium exposure is a Flat

Premium option or Pool B entry (as mentioned above).

This produces an additional Flat Premium charge, payable for the

policy year.

It is important to appreciate that, by entering Pool B, a member

is not insulated from the effects of mutualization in Pool A but

only from payback of the member’s own losses under the Retro

Premium plan. This in itself is achieved by mutualizing with a

slightly smaller, potentially more volatile, Pool B.

As noted, Pool B premium does not fund DNWS losses.

QUOTA SHARE (QS) OPTIONS

INTERNAL QS TO POOL B

The Pool B QS (Internal QS) option allows members to remove

their exposure to individual Retro Premium (by entering Pool B)

and then reduce their exposure to the mutual nature of Pool B

by taking a QS retention of their OIL limit (in increments of 10%,

20%, and 30%). Alternatively, a member can opt for the Standard

Premium Only option, whereby the member fully retains 40% of

their own losses outside of Pool B. Either of these options can be

fully or partially protected in the commercial market by way of a

QS placement.

One downside to this option is using only a part of, rather than

the full, available OIL limit in any one loss, thus potentially

sacrificing capacity.

EXTERNAL QS

The External QS option allows a member to use the full OIL limit as

QS part of a larger program limit without sacrificing OIL capacity.

This reduces the horizontal exposure to OIL (and therefore, in theory,

to loss payback) and will result in a reduction in the OIL premium

over time as profile (Weighted Gross Asset) changes are gradually

reflected under the Lock-In premium calculation. Again this option

can be blended with a QS commercial market placement.

One benefit of selecting a QS option (either Pool B Internal QS or

External QS) is that it avoids total reliance on OIL. If a suitable QS

program can be developed it could support the buying of business

interruption and other coverages in the commercial markets.

RETROSPECTIVE PREMIUM OPTION

If the Retro Premium option is selected in place of the Flat

Premium or Standard Premium Only options, then the member

becomes liable for Retro Premium for the losses it incurs. The

main features of the Retro Premium plan are:

• Retro Premium is only paid by members actually sustaining

losses (paid on their own losses sustained).

• OIL pays 100% of such losses – full limit (coverage) available

(including full US$250 million limit for DNWS).

• Retro Premium plan member then repays 40% of their own

losses through payment of Retro Premium.

OIL USD

400M

Commercial Market

USD 400M

OIL Deductible

‘External’ Quota Share Example(USD 800M)

‘Internal’ Quota Share Example(USD 800M)

60% of

USD 400M OIL

40%

Commercial Market

OIL Deductible

Marsh • 17

• Losses are repaid on a straight line

basis in equal installments (20% per

year) over five years.

• Retro Premium is first collected in the

OIL policy period immediately following

the date the loss is incurred (date

reserve booked – irrespective of the

actual date of loss settlement).

• Members also have the option to select

a partial Retro Premium option (in

increments of 10% up to 40%). This

option can then be combined with

Internal QS to Pool B.

Under the Retro Premium plan, 60%

of a member’s losses are repaid by all

members paying the Standard Premium

(Pool A) and between 10% and 40%

(depending upon partial option selected)

is repaid (over time) by the member

sustaining losses.

PREMIUM DISCOUNTSA member’s premium is formulated off a

base calculation at a deductible of US$10

million and a limit of US$400 million.

Discounts off the base calculation are

available for deductibles that are higher

than US$10 million and for limit profiles

that are less than US$400 million. It

should be remembered, however, that

premium reductions are phased in over

five years (as the risk profile changes as a

result of the phasing effect of the lock-in

plan).

NEW ENTRANT PREMIUM (NEP)Upon joining OIL a new member is

required to pay New Entrant Premium

(NEP).

NEP will be determined by OIL based

on the expected losses for the year of

joining, for each of the premium pools

that the new entrant is participating in,

multiplied by their Pool Percentage. The

Pool Percentage will be determined by

comparing their Weighted Gross Assets

relative to the total Weighted Gross

Assets for the first year of membership.

The NEP is then fixed. In each subsequent

year, the premium will be adjusted at 20%

per year as a combination of NEP and

Lock-In premium, calculated as above,

until the NEP is eliminated after five years.

Note: NEP is not included in a member’s

Theoretical Withdrawal Premium (TWP)

calculation (it is in addition to future loss

driven premium or TWP obligations which

are based on actual incurred losses during

the period of membership rather than

expected or forecast losses at the time

of joining). If a high NEP is of concern a

possible mitigation strategy would be

to join OIL at a high deductible level (to

manage NEP) and then subsequently

reduce the deductible after three years.

This would, however, require the prior

(explicit) agreement of OIL at the time of

joining.

EXPERIENCE MODIFICATION (EM)Once premium has been calculated

in accordance with the Lock-In Plan,

as described above, it may be further

adjusted by application of EM as detailed

below:

• EM was first introduced into premium

calculations in 2014 (impacted

premium from 2015 taking five years

for full implementation by 2019).

• EM redistributes calculated premiums

so that members with relatively poor

loss records pay more and those with

better records pay less. Premium

impact to OIL of redistribution is

neutral.

• Calculated premium (under the Lock-

In Plan) is adjusted by applying an EM

Factor (debit) based on a member’s

Reserve Ratio (RR) or an EM premium

credit (redistributed share of total

debits).

• RR for any given year generates an EM

Factor to be applied to the calculated

annual premium for the subsequent

year (RR calculated for 2017 drives EM

for 2018 premium).

• One-off debit/credit – process repeated

for each annual premium.

• RR = a member’s own Loss Reserve

Movements (“LRM”) + Loss Adjustment

Expenses (“LAE”) divided by that

member’s share [pool %] of OIL total

LRM + LAE (for any given year).

• RR is calculated on a three-year rolling

basis (three prior financial loss years).

• LRM = incurred losses and reserve

changes (all reserve movements from

current/past accident years) in any

given financial year.

• EM Factor is based on a member’s RR

within a range to be determined by OIL

board.

• EM Factors range from 1.0 to 1.25

based on RR ranging from 150% to

350% (range of factors may change).

• The maximum EM Factor the OIL board

can set is 1.50 before having to go out

to the membership for authority.

• Examples of RR impact on EM:

– RR ≤150% = EM Factor of 1.0 (no

EM).

– RR 250% = EM Factor of 1.125

(applied to calculated premium).

– RR ≥ 350% = Maximum EM Factor

of 1.25 (applied to calculated

premium).

• TWP Spot estimates are adjusted

annually (debited or credited) to reflect

impact of EM on premium.

• If member changed EM then other

members credited,

thus neutral to OIL.

Phase in of rolling RR calculation took

three years (started with 2014 losses only

and then 2014/2015 and so on). Phase

in of Premium impact will take five years

(only 20% of 2015 annual premium was

impacted by EM then for 2016 40% was

impacted and so on for five years). OIL is

effectively operating a split rating system

for five years (so there is medium term

added complexity to the R&PP).


PROSPECT PREMIUM INDICATIONSPremium indications can be obtained from OIL in one of two ways:

• For a non-binding premium estimate, a Premium Indication

Request Sheet (PIRS) must be completed. Indications can

be offered on a “no-name” basis but are provided subject

to confirmation that the prospect meets the eligibility

requirements. Your Marsh client executive will be able to do

this for you.

• If a prospect wishes to actively pursue OIL membership,

additional information is required and a Premium Indication

Request Form (PIRF) must be completed as part of the

membership application process.

The PIRS can be downloaded from the OIL website and submitted

directly to [email protected] or to a member of the OIL team, and

turnaround time for premium indications is usually 48 to 72 hours.

OIL will provide an estimate of the New Entrant Premium (NEP)

for the first year of entry but thereafter annual premium depends

on the mutual loss record.

It should be noted that despite the minimum eligibility

requirement of US$1 billion of UGA, for some prospects OIL

may not be a cost-effective option unless their UGA are at least

US$4 billion. This is because, as noted above, to qualify for the

full US$400 million OIL limit, UGA will be deemed at US$4 billion

for premium purposes. This may significantly impact the quoted

premium. For example, a company may qualify with the minimum

US$1 billion of UGA, but if those assets are devoted entirely to

the Offshore Exploration and Production Sector they will firstly be

deemed at US$4 billion and then further adjusted (weighted) to

approximately US$6 billion (according to the weighting factors

that currently apply under the R&PP). Such prospects may

indeed qualify for OIL with UGA of only US$1 billion but for a

US$400 million limit their assets (and premium) will potentially

be loaded by as much as a factor of six, thus OIL may not be a

competitive option. However, they do have the option to select

a lower limit (equivalent to 10% of UGA) of anywhere between

US$100 million and US$400 million until such time as the

company grows in size.


Marsh • 19

CONSIDERATIONS FOR MEMBERSHIPIn order to fully evaluate the suitability of OIL membership many

factors have to be carefully assessed, not just the premium cost.

When contemplating membership, various advantages and

disadvantages of membership need to be considered.

IF OIL MEMBERSHIP CAN BE RECONCILED WITH OVERALL RISK MANAGEMENT STRATEGY, THEN IT CAN OFFER MANY BENEFITS, INCLUDING:

OWNERSHIP

• Owned by, and therefore responds to, its membership as

opposed to financial markets or reinsurers.

• Focus is on the needs of its members in relation to the

coverages afforded; again OIL is not reliant on reinsurers’

coverage issues.

CONTINUITY

• Long-term capacity available to members.

• S&P and Moody’s rated.

• Affords an alternative to or hedge to the commercial market cycles.

INDUSTRY FOCUSED

• Established in direct response to the needs of the petroleum

industry when commercial markets ceased to provide

adequate coverage or limits for certain catastrophe events.

Subsequently expanded to encompass “Energy” definition

in response to the changing profile of the industry and its

members.

• Coverage tailored to the specific needs of the energy industry.

• Mutual for the benefit of and run by companies with shared

goals and interests, provides a forum for sharing industry

intelligence with peer group.

COST

• Premium simply designed to post fund historical losses plus

expenses incurred by existing members.

• Greater operating efficiencies than traditional markets.

• Expense ratios amongst the lowest in the insurance industry.

Effectively every premium dollar collected has a direct

correlation to claims incurred by the membership.

• Delivers maximum value of premium dollar spend to members

rather than outside shareholders.

COVERAGE

• Automatic cover for new assets (under construction,

constructed, or purchased).

• In many instances coverage is broader than the equivalent

commercial market product.

• With the exception of DNWS and non-owned property which is not

included in UGA declaration, no coverage (risk or peril) sublimits.

• Worldwide coverage (no territorial exclusions/restrictions but

a sanctioned activity exclusion applies).

Note: OIL has announced the elimination of Offshore Gulf of

Mexico windstorm coverage in 2018.

LIMITS AND DEDUCTIBLES

• Availability of significant and reasonably easily accessed limits.

• Limit flexibility available by way of individual Sector limits

(no need to purchase full limits for all Sectors – subject to a

warranty where applicable) or ventilated (split) limits.

• Full limits available for terrorism (including cyber terrorism) and,

with the exception of DNWS, natural catastrophe (Nat Cat) perils.

• No joint venture restriction on individual assets and, with the

exception of DNWS, no annual aggregates for Nat Cat perils

(only the overall “single event” aggregate).

• Deductible options with flexibility to structure to individual needs.


EASE OF ADMINISTRATION

• No capital contribution – purchase of voting stock only

(US$10,000 for one “A” share of capital stock).

• No long-term membership tie in – can exit each year on

December 31 (after giving 90 days notice) in return for

payback of members’ share of unfunded pooled losses and

(if applicable) outstanding Retro Premium. The creation of

the “exit premium” (Theoretical Withdrawal Premium (TWP))

balance sheet contingent liability, potentially eases the exit

process as the liability has already been incurred.

• Premium calculation based on Unmodified Gross Assets derived

from published balance sheet significantly reduces reporting

burden on risk management department (as long as balance

sheet complies with US GAAP (Generally Accepted Accounting

Principles)/IFRS/Canadian GAAP/Japanese GAAP).

• No requirement for engineering inspections or visits.

• Entry can be direct or by captive in order to facilitate

reinsurance of local insurance programs by OIL.

POTENTIAL DISADVANTAGES TO CONSIDER, DEPENDING UPON INDIVIDUAL PERSPECTIVE, INCLUDE:

• The concept of mutualization and the member’s philosophy to

this and risk retention in general.

• The fact that the member will be participating in a mutual with

companies involved in high-risk exploration and production

or heavy petrochemical operations. This risk is somewhat

mitigated by OIL’s unique risk weighting system.

• Exposure to potentially volatile risk areas, for example, DNWS

irrespective of own risk profile, although this exposure has

been somewhat mitigated for members without DNWS

exposure by the introduction of the Pool A annual aggregate

retention and the specific excess windstorm pools. It will be

further mitigated by the elimination of the Offshore Gulf of

Mexico DNWS coverage and premium pool in 2018.

• The potential for additional collateral requirement if pool

participation exceeds 30% of any pool.

• The potential of premium calls for adverse loss experience.

Note: this risk has potentially been mitigated as the Bermuda

Monetary Authority and Standard & Poor’s have given OIL

specific capital credit for the outstanding TWP amounts owed

by the membership.

• The potential for premium loading as a result of Experience

Modification.

• The extent that an OIL entry addresses a member’s total

insurance needs.

• The single event Aggregation Limit, currently US$1,200 million

(or US$750 million for DNWS), which creates uncertainty if

a loss exceeds this limit. Recovery by each member could be

significantly less than their full policy limit (to date this limit has

only been applied as a result of DNWS losses in 2005 and 2008).

• The DNWS (per Occurrence and annual aggregate) limit and

deductible restrictions.

• Elimination of Offshore Gulf of Mexico windstorm coverage in 2018.

• Potential for future windstorm limit restrictions in other

“geographic regions”.

• Potential for OIL to prospectively restrict or withdraw coverage

if it experiences significant losses in a particular risk category

or sector. This outcome is expected to be less likely than in the

commercial market.

• Inability to individually influence premium. Premiums

are fixed according to the Rating & Premium Plan (R&PP)

– no negotiating position for individual members. Risk

differentiation comes through the weighting of assets by

Sector (or geographic area for DNWS) for premium generation.

There is currently no individual differentiation between

members in a given Sector (although individual premiums may

be subject to Experience Modification).

• Members have to ensure their balance sheet conforms to US GAAP/

IFRS /Canadian GAAP/Japanese GAAP (certified by an auditor).

• Requirement to repay on withdrawal the member’s share of

unfunded pooled losses (TWP) and (if applicable) outstanding

retrospective premium at the time of such withdrawal.

Members need to account for the TWP based on their

theoretical (at any time potential) withdrawal from OIL.

This has created a balance sheet liability for OIL members

accounting under US GAAP/IFRS /Canadian GAAP/Japanese

GAAP regardless of their intention or otherwise to withdraw

from OIL. However, upon withdrawal, the liability is translated

into a short term cash flow demand with a corresponding

positive impact on the balance sheet once it is paid.

• Elective coverage changes do not result in an immediate and

corresponding change in premium. The impact of coverage

profile (Weighted Gross Asset) changes on premium takes five

years to be fully embedded.

• Decisions affecting coverage are at the discretion of the board

of directors; majority decisions will apply. Any decisions

affecting the R&PP require a 75% majority vote of the

shareholders (not the board of directors).

• The OIL form is set and non negotiable from an individual

standpoint. Wraparound coverage may still be required. OIL is

not necessarily a complete antidote to the commercial market.

• Potential OIL claims adjustment complexity if OPOL claim is

subsequently withdrawn (or time barred).

Marsh • 21

• Construction all risk (CAR) cover is potentially of limited

value (no benefit to contractors or lenders, etc.) although the

member can designate third parties as loss payees.

• OIL is non-admitted in certain territories (but fronting through

a captive can be arranged).

• The “non-gradual pollution” cover provided by OIL is, in

some cases, potentially more restrictive in terms of discovery

and reporting provisions than coverage available from the

commercial market for offshore (upstream) E&P operations.

However, it is still very much broader than what is available

under a traditional property form.

While any one of the above considerations taken individually

may not be sufficient to determine the final decision on OIL

membership, taken collectively they may influence that decision

and lend subjective support to the more objective pricing and

structure considerations that will apply.

As can be seen, the issues surrounding OIL can be complex and it

is recommended that companies refer to their insurance advisers

for guidance before taking decisions on OIL membership. This is

an area where Marsh’s Global Energy Practice can certainly add

value and deliver expertise.

MEMBERSHIP APPLICATION PROCESSThere are four primary bases on which to apply for OIL membership:

• Direct (Energy Company as Shareholder) – OIL will insure the

energy company on a direct basis. The energy company will be

the named insured.

• Direct and reinsurance (Energy Company as Shareholder)

– OIL will insure the energy company on a direct basis for

some risks (territories) and act as a reinsurer (of the energy

company’s wholly owned captive) for other risks. The energy

company will be the named insured and the captive will be

scheduled as a joint policyholder (for specified territories). The

advantage of this basis of entry is that it allows maximum flexibility

depending upon the requirements of a particular territory.

• Reinsurance (Energy Company as Shareholder) – OIL will

reinsure the energy company’s wholly owned captive for all

risks. The captive will be the named insured for all operations/

territories and the energy company will be scheduled as

such on the Policy Declaration. A parental guarantee is not

required (because the energy company is the shareholder and

therefore “owns” all of the contractual obligations under the

Shareholders’ Agreement).

• Reinsurance (Captive as Shareholder) – OIL will reinsure the

energy company’s wholly owned captive for all risks. The captive

will be the named insured and the energy company will be

scheduled as above (no difference in coverage). A parental

guarantee for the captive (as shareholder) may be required.

This is the only potential disadvantage of this particular basis

of entry. However, if the captive has an investment grade rating

acceptable to OIL (i.e. from Standard & Poor’s or Moody’s) then

a parental guarantee will not be required by OIL.

Note: Where insurance has to be placed with a local (or state-

owned) insurance company, OIL will not reinsure such local

insurance companies. However, the above membership options

provide a flexible solution:

• In countries where OIL is a non-admitted insurer and local

insurance is required, OIL can provide reinsurance of a

member’s wholly owned captive (as outlined above).

• The full US$400 million limit remains available to members

regardless of whether OIL is a non-admitted insurer and

regardless of the limit of the captive issued policy.

Marsh • 21


• If a fronting policy is issued, OIL will only reinsure the captive,

however, OIL can also insure the OIL member directly, subject

to local insurance regulations (so any surplus OIL limit beyond

the locally issued fronting policy is available to the member as

long as this does not breach local regulations).

Full cover remains available to the member but the OIL “Other

Insurance” provisions will apply (OIL has benefit of more specific

valid and collectible local insurance to avoid double insurance)

and tax and local regulatory considerations may apply. The

member would therefore have to seek tax and legal advice

independently (and would be responsible for such matters).

Application for OIL membership is a fairly straightforward

process, but a certain amount of forward planning is required:

• Once a company has expressed an interest in joining OIL, it will

need to complete the PIRF and the membership application

forms. These forms allow the company to select its coverage

profile and provide OIL with information regarding the

business operations of the company as well as the required

legal information (parental guarantees/auditors statements

and the like). In addition, OIL requires a detailed summary of

the company’s 10-year loss history, for all losses in excess of

US$5 million (reported from the ground-up).

• OIL membership application forms can be found under the

Agreements, Policies & Forms section of the OIL website.

• Once the completed application forms have been received by

OIL, all information will be submitted to OIL management for

approval. OIL management may impose restrictions on the

coverage profile offered to a prospective member. Once the

prospect receives approval, the OIL insurance/reinsurance

policy is issued to the new member.

• A new member will be billed for its initial premium plus

US$10,000 for the purchase of one class “A” share as outlined

in the OIL Shareholders’ Agreement. Ownership and voting

rights are accrued over time as a function of certain premiums

paid and length of membership.

• The OIL Shareholders’ Agreement must be signed in Bermuda

prior to joining. If the new member is unable to travel to

Bermuda, the Shareholders’ Agreement can be signed by a

local contact (broker, lawyer, or other representative) via a

Power of Attorney.

TIMING • A company can join OIL at any time.

• However, all applications must be approved by OIL

management and a certain process (as outlined above) has

to be adhered to. While an entry can in certain circumstances

be “fast tracked” we would recommend that a minimum of

two months is allowed from submission of the final (formal)

application to completion of the process and inception of the

policy to allow for any last minute changes or clarifications on

either side. Final approval will take place after a face-to-face

meeting with the prospect company.

• The initial policy period will run from the date of joining to

December 31 of that year. Thereafter, policies are issued for

a calendar year and automatically renew at the anniversary

(December 31) unless notice of cancellation is received by OIL

by September 30 (for withdrawal from OIL at December 31 of

that year).

• We do not recommend OIL as a short-term (opportunistic)

solution. While there is no hard and fast rule concerning length

of membership, prospects would be encouraged to view OIL as

a minimum five-year commitment.

Note: New entrants accrue liability on all loss movements

for the year they join. The date of entry determines their

percentage of losses. For example, if a member joined on July 1

the member accrues liability for 50% of all loss movements for

the year – not only on the losses between July and December.

Note: OIL may, at its discretion, terminate coverage if a member

fails to:

A. Pay its premiums when due.

B. Maintain the appropriate level of financial responsibility

(for example, credit rating, posted security, etc.).

C. Meet the eligibility requirements set out in the OIL

Shareholders’ Agreement.

Marsh • 23

CONTRACTUAL PREMIUM OBLIGATIONSOIL membership entails an undertaking to commit to certain

express premium obligations. These can be summarized as follows:

• Members are contractually obligated to pay their share of

pooled losses.

• Any member leaving OIL must pay, immediately upon exit,

its share of unfunded pooled losses and, if applicable,

any unpaid Retro Premium; this is referred to as the Withdrawal

Premium. It is not an exit penalty. In simple terms the

Withdrawal Premium is the premium the member would have

paid over the next five years had it not withdrawn from OIL and

OIL sustained no further losses.

• Members are typically required by their auditors (to comply

with various international accounting standards) to book the

Theoretical Withdrawal Premium (TWP) amount, i.e. potential

Withdrawal Premium (regardless of intent to exit or otherwise)

which has to be carried on balance sheet as a liability.

• Accrual of the TWP liability is not an OIL requirement, although

OIL does calculate the TWP amount for each member.

Furthermore, any member that does not satisfy, or falls below,

the minimum financial eligibility criteria may have to post

additional security (usually a LOC) to cover its TWP obligations

as outlined above.

OIL OCCURRENCE TRIGGEROIL coverage is triggered by the happening of an Occurrence.

An Occurrence is essentially defined as an event or continued or

repeated exposure to conditions commencing during the policy

period that is neither intended nor expected by the member and

that causes loss (or losses irrespective of the period or area over

which such losses occur).

• For earthquake an event means one or more earthquake

shocks occurring within any period of 72 hours.

• For “perils of nature” including but not limited to windstorm,

an event equates to a single atmospheric disturbance

designated by the Responsible Meteorological Service.

The definition of Occurrence in a commercial market policy may

be different from OIL. This can include different application of

72-hour clauses and definitions of windstorm or other natural

phenomena. Such differences give rise to a potential disconnect

with respect to the treatment of limit and attachment point for

any excess OIL or OIL difference in conditions/wraparound (“OIL

Wrap”) policies that may be put in place to compliment OIL. This

issue needs to be carefully managed.

A separate definition applies for Designated Named Windstorm

(DNWS) Occurrences. Currently a DNWS Occurrence equates to

a Named Windstorm originating in or migrating into the Atlantic

Basin DNWS region only (formerly known as an “Atlantic Named

Windstorm” or “ANWS”), and this is further discussed below.

Marsh • 23


Marsh • 25

DESIGNATED NAMED WINDSTORM (DNWS) OCCURRENCE DEFINITIONThe definition of DNWS Occurrence requires careful consideration.

In simplistic terms:

• DNWS Occurrence comprises losses attributable directly or

indirectly to a DNWS (as defined) and includes all onshore

and offshore losses arising from such windstorm (DNWS),

irrespective of the period or area over which such losses occur.

• DNWS Occurrence definition includes losses arising out of

pre-storm preparatory measures (including ensuing fire,

explosion, or collapse resulting from pre-storm shutdown and

re-start activities).

For the purposes of the DNWS Occurrence definition, a DNWS

is currently defined (simplistically) as a “hurricane, typhoon,

tropical cyclone, cyclonic storm, or any other windstorm”

which “originates in or migrates into” the Atlantic Basin (which

essentially comprises the North Atlantic Ocean west of the Cape

Verde Islands, the Caribbean Sea, and the Gulf of Mexico as

defined by OIL) AND is named by the Responsible Meteorological

Service. This was formerly known as an “ANWS”.

Conceivably, in the event of a DNWS Occurrence triggering

the OIL Aggregation Limit (for all losses arising out of a single

Occurrence), a member suffering damage which is solely

attributable to precautionary “shutdown/re-start” activities may

be unable to recover their full OIL loss due to the DNWS coverage

restrictions outlined below even though the member did not

suffer any actual storm (wind or flood) impact damage, but this

will depend upon the facts and circumstances of each loss (which

will govern policy interpretation).

Note: If a named storm (a DNWS) tracking up the east coast of

the USA causes damage to a property in New Jersey it is still a

DNWS Occurrence and subject to DNWS coverage (limit and

deductible) restrictions.

Also from January 1, 2018 OIL will exclude Offshore Gulf of

Mexico DNWS coverage. This exclusion will give rise to a possible

disconnect with respect to limit application when compared to

the commercial market alternative

DESIGNATED NAMED WINDSTORM (DNWS) COVERAGE RESTRICTIONS AND PREMIUM OBLIGATIONSWindstorm coverage restrictions and premium obligations

currently only apply to the Atlantic Basin DNWS region

(windstorm exposures in the Gulf of Mexico/Caribbean/US Gulf

Coast and US East Coast onshore region). This was formerly

known as an “Atlantic Named Windstorm” or “ANWS”.



However, in this Companion we focus on the windstorm coverage

and limit restrictions as they currently apply to the Atlantic Basin

DNWS region.

For OIL members with DNWS exposed assets, the restrictions and

premium obligations (applicable to DNWS Occurrences only) can

be summarized as follows:


COVERAGE RESTRICTIONS

• Lower limit and quota share (QS) retention: The limit is lower

than the full OIL limit. It is restricted to US$150 million (60%

QS) part of US$250 million per Occurrence. This imposes a

40% QS retention of up to US$100 million per Occurrence for

DNWS losses.

• Lower Aggregation Limit: A lower limit of US$750 million

applies to DNWS Occurrences. This creates a potential shortfall

in cover. However, scaling of limit is less likely for DNWS losses

(as only 60% of DNWS losses are paid by OIL and thus exposed

to the Aggregation Limit).

• Annual aggregate limit: The annual aggregate limit is

200% of the DNWS Occurrence limit selected by each

member. This imposes a recovery cap of US$300 million per

annum for each member.

• Deductible: The DNWS deductible stands for interest (not

scaling) which means that members have a fixed attachment

point for DNWS losses. For members with a US$10 million

per Occurrence deductible, this potentially creates a larger

deductible by up to US$9 million per Occurrence for interests

of 10% or less. For higher deductibles the effect is more

pronounced. DNWS specific deductibles must be selected and

declared to OIL each year and apply separately for onshore and

offshore losses.

Note: The above restrictions currently only affect DNWS

Occurrences (named windstorm losses in respect of the US Gulf

of Mexico/Caribbean/Gulf Coast and US East Coast onshore

region) and do not apply to other perils (fire, explosion, and

earthquake, for example) unrelated to a DNWS Occurrence for

which limits/deductibles remain unaltered, including the full

US$400 million per Occurrence limit.

PREMIUM OBLIGATIONS • Members of the eight defined OIL Sectors (Refining &

Marketing/Chemical, Offshore Exploration & Production, for

example) fund all non-windstorm losses.

• DNWS losses up to an annual aggregate of US$300 million are

funded (mutualized) by all members of the eight Sectors in the

Standard Premium (Pool A annual aggregate retention).

• DNWS losses in excess of the US$300 million Pool A annual

aggregate retention are funded (mutualized) only by those

members with DNWS exposed assets in two excess windstorm

pools (onshore and offshore). Zero DNWS assets = zero DNWS

pool exposure.

• DNWS losses flow through the Pool A annual aggregate

retention and into the two excess windstorm pools from the

bottom up (with pool exposure adjustment at year end).

• For premium purposes the two excess windstorm pools

are ring-fenced – the onshore pool is not exposed to losses

(premium payback) from the offshore pool and vice versa.

• OIL may require the excess windstorm pools to QS the

US$300 million Pool A annual aggregate retention with the

eight Sectors. The QS factor will be determined annually and

is subject to a maximum of 25%. Currently the QS percentage

factor is 0%.

• The two specific (and distinct) excess windstorm premium

pools are potentially more volatile in the event of DNWS losses.

• DNWS losses do not flow through Pool B (because of the above

40% QS retention).

• Retro plan option can be selected for the 40% DNWS QS

retention (in increments of 10% up to 40%).


Marsh • 27

WINDSTORM COVERAGE IN OTHER GEOGRAPHIC REGIONSCOVERAGE RESTRICTIONSWindstorm coverage restrictions are only applied to Atlantic

Basin DNWS losses at this time. However, “Trigger Events” have

been defined by OIL to implement coverage restrictions for other

geographic regions if impacted by future windstorm losses.

Incurred loss Trigger Events by geographic region are defined as:

• A single loss event of US$750 million.

• Cumulative losses of US$1 billion over a five-year rolling period.

Once a Trigger Event is incurred, windstorm coverage and pricing

for that geographic region will automatically change in the next

policy year (unless OIL determines otherwise). Changes will

mirror the restrictions that currently apply to the Atlantic Basin

DNWS region. A new DNWS region will be created.

Any new DNWS region will be defined by OIL, but we understand

this will essentially relate to any area (concentration of assets)

which can be impacted by a single named windstorm.

PREMIUM OBLIGATIONS

As stated above, members of the eight defined Sectors fund all

non-windstorm losses. However, members with DNWS exposed

assets will absorb the majority of the premium severity and

volatility relating to DNWS losses, as the eight defined Sectors

only fund up to US$300 million annually of DNWS losses (and

this may be further reduced by application of a QS factor with the

excess pools, although as stated above, the QS factor is currently

set at 0%). Therefore, there is less exposure from DNWS losses

to the greater mutual body (due to the per member annual

aggregate limit and annual aggregate retention capping, and

the creation of DNWS specific premium pools). Consequently,

there is less exposure to potential premium increases from losses

caused by DNWS events. The potential for premium increases will

be further mitigated by the elimination of Offshore Gulf of Mexico

DNWS coverage and premium pool in 2018.

GENERAL CONDITIONS

TERRITORY

Worldwide (no restrictions, including terrorism) BUT a sanctioned

activity exclusion applies.

CURRENCY

US dollars.

POLICY GOVERNING LAW

New York State.

SHAREHOLDER AGREEMENT GOVERNING LAW

Bermuda.

JURISDICTION

Arbitration: Law of England and Wales.


OTHER INSURANCE

Excess of other insurance (unless schedule OIL as primary per OIL

Endorsement No.5). Note: Endorsement No.5 does not renew

automatically and members are required to resubmit annually.

FIXED CONDITIONS

No bespoke wording changes.

POLICY TERM

Annual (automatically renewed unless notice to cancel by

September 30).

NON-OWNED PROPERTY SUBLIMITA sublimit of US$50 million per Occurrence applies for non-

owned property:

i. Which is not included in a member’s UGA declared to OIL.

and

ii. Which is not used or intended for use in the operations of

the member.

However note the importance of the word “and” as in a link

(double trigger) between (i) not included in UGA and (ii) not

used…etc. as this mitigates application of the sublimit.

NOTICE OF LOSSThe Assured is required to provide written notice of any loss

which is likely to involve OIL as soon as practical in accordance

with Condition E of the OIL policy.

Written notice can be provided by email to:

[email protected].

CLAIM REPORTING REQUIREMENTSClaim reporting requirements are a “condition precedent to

coverage” under Condition I of the OIL policy. In summary:

• OIL can look to avoid liability for non-compliance.

• A pollution Occurrence has to be discovered within 40 days

and reported within 120 days of the date of Occurrence (for all

Occurrences after January 1, 2006).

• Pollution claims have to be submitted within a year of the

member making settlement/incurring ultimate net loss (UNL)

for such claim. Liability will not attach until the member’s

liability is fixed by final judgment against the member or by

settlement with the prior written consent of OIL.

Marsh • 29

Furthermore, any member leaving OIL may report claims

resulting from Occurrences during their membership up to five

years from the date of departure.

However, for all claims for which payment is sought after the date

of departure, a member’s recovery is limited to their notional

dissolution rights at the time of departure. The limitation does not

apply to claims submitted prior to termination of membership.

Note: Claims are booked in the year in which OIL has sufficient

information to establish an initial reserve. This may be the same

year as the occurrence date, the year in which it is reported to

OIL, or some other date. For example, a loss that occurs in 2017

may be booked in the 2017 loss year or in later years. Case

reserve movements are only booked in the year in which OIL has

sufficient information to book the reserve movement. This is a

different treatment than that which applies to most commercial

market policies where the loss settlement will go back to the

policy year in which the loss occurred.

Losses in a currency other than U.S. dollars will be converted on

the date when the proof of loss is finalized per condition K of the

OIL policy.

OFFSHORE POLLUTION LIABILITY AGREEMENT (OPOL) ENDORSEMENT (AND OPOL CERTIFICATION)Where OPOL coverage is required, the OPOL endorsement (OIL

endorsement No. 4) allows members to use the OIL policy to

certify evidence of financial responsibility for a limit of liability of

US$250 million per incident.

The OPOL endorsement specifically dedicates US$250 million of

limit per operator for OPOL incidents and will reserve that limit

until liability is determined as defined by OPOL. OIL requires an

indemnity from the member before the OPOL endorsement is

issued. An indemnity also applies if:

• A member has an OIL policy deductible that is greater than

the OPOL maximum of US$10 million (the member has

to indemnify OIL for any OPOL claims between the OPOL

maximum deductible and the OIL policy deductible).

• There are differences in conditions between the OIL and OPOL

wording (differences in conditions arising from changes after

January 1, 2016 will be covered by OIL on an indemnity basis

and is cancellable mid year by OIL if the credit exposure for DIC

is unacceptable to OIL); or

Note: OIL confirmed in writing that the changes to OPOL

implemented on April 1, 2016 that were agreed in December

2015 are included in coverage even though their inception

date is after January 1, 2016.

• Claims paid from a single Occurrence exceed the Aggregation Limit.

The fact that OIL will reserve US$250 million (part of the US$400

million) limit for OPOL claims (give priority of settlement to OPOL

claims) could give rise to a potential recovery gap and additional

adjustment complexity for policies written excess of OIL (or “OIL

Wraps”) where the OIL limit is deemed in place.

Marsh • 29


The OIL settlement may be readjusted upon final resolution of

OPOL claim (or withdrawal of OPOL claim or if the OPOL claim is

time barred – one year from date of incident as defined by OPOL)

and this will require careful coordination with excess markets,

otherwise there may be a recovery gap or at best a recovery delay.

It’s not so much the Combined Single Limit (CSL) and priority

of settlement that is the problem, but more the potential for

readjustment and delay in OIL loss settlement.

OIL members with OPOL entries should be aware of this added

complexity and it is recommended that companies refer to their

insurance advisers for guidance.

SPLIT POLICIES AND POLICIES BY GEOGRAPHIC REGIONAs mentioned, OIL is flexible. Members have the additional

option of arranging their OIL entry such that it more appropriately

meets the needs of the business or operations of subsidiary or

joint venture companies.

There are two options available:

SPLIT POLICY A member can request a separate policy, known as a “split policy,”

for a joint venture or subsidiary company. This option has certain

advantages (as outlined below) but to qualify for a split policy, the

joint venture or subsidiary must:

A. Be a separate legal entity with separate financial statements.

B. Have a separate insurance program.

C. Operate as an independent profit center.

D. Have autonomous risk management and insurance functions.

Requests for split policies are at OIL’s discretion and subject to

OIL senior management approval. Split policies do not increase

the overall member’s policy limit as the limit under a split policy is

shared with the limit of the member’s main OIL policy.

The assets of the split member are reported separately on the gross

asset declaration of the member, and only those assets are taken

into account when calculating the premium for the split policy.

The main OIL shareholder assumes financial responsibility for

split members.

Benefits of a split policy include:

A. The ability to select different limits or deductibles from the

member’s main OIL entry for a particular subsidiary or joint

venture company.

B. A separate premium invoice for the subsidiary or joint

venture company.

C. The full US$400 million limit being available for the subsidiary

or joint venture company without the requirement to “deem”

assets at US$4 billion for such company (although the main

member must still have US$4 billion of assets).

This may allow a joint venture company to be covered that might

not otherwise qualify for a standalone OIL entry.

POLICIES BY GEOGRAPHIC REGIONA member can have its policy – and premiums – split by

geographic region, for example, US and non-US risks. The

Policy Declaration issued by OIL will be split by the requested

geographic regions. The premiums will also be split based on the

percentage allocations provided by the member. A policy split

by geographic region does not alter the coverage, deductibles,

limits, or premiums that would otherwise apply had a single

policy been issued to the member.

Marsh • 31

VENTILATED (SPLIT) LIMIT OPTIONMembers can purchase ventilated (or split) limits subject to

approval by OIL so that limit deployment more appropriately

meets the needs of the business.

The limits offered by OIL are intended to be used in a single

contiguous layer but limits can be split or ventilated (for example)

US$200 million as a primary layer and US$200 million as a high

excess layer but only with the consent of OIL. OIL will determine

what premium effect this will have depending upon the overall

risk profile and Weighted Gross Assets but this may be a way to

more appropriately deploy limit/achieve premium saving and at

the same time avoid the warranty regarding the absence of other

insurance (which would otherwise apply if the member elected

for less than US$300 million limit from OIL).

OIL will also allow different layers of a ventilated limit to be

arranged with different coverage profiles (for example, one layer

can be on an external quota share basis and another layer can be

on a 100% order basis) so it is very flexible.

Note: Endorsement No.5 (Schedule of Excess Insurance) will

need to be adjusted to reflect split limits.

Member Retention

OIL US$100m Excess P/O US$400m (Layer 2)

OIL US$300m Primary P/O US$400m (Layer 1)

Commercial Market

Layer(s) as required

OIL ENDORSEMENT No.5OIL (per its terms and conditions – Condition G Other Insurance)

responds excess of any other valid and collectible policy that is

to say as the top layer of insurance. This is the default position.

However, Endorsement No.5 (Schedule of Excess Insurance) to

the OIL policy allows the member to schedule OIL as primary

insurance.

Where OIL “wraparound” or excess layer limits are intended to (or

more importantly could) apply to coverage that is also provided

by OIL (property damage/control of well, etc) Endorsement No.5

must be submitted to OIL by the member in order for OIL to be

primary to such limits.

Endorsement No.5 will contain a schedule of the policies (or

sections of policies) that are to apply excess of OIL (to which OIL

is to be considered primary in any given loss recovery).

Members are also required to attach a diagram/pictorial of its

insurance program.

Note: Endorsement No. 5 does not renew automatically.

Members are required to update the schedule each year and the

endorsement is not effective until all applicable documents are

received and approved by the underwriter. (OIL will always be

excess of a Protection and Indemnity Club).


Marsh • 33

FREQUENTLY ASKED QUESTIONS (FAQS)Interested parties are recommended to refer to the OIL website

www.oil.bm for an extensive list of answers to FAQs. However, in

this Companion we offer our own answers to selected questions

that are often asked but which are not specifically addressed by

the OIL website FAQs.

Q1. Can a member name additional insured parties under their

OIL policy?

A: OIL insures the Policy Holder (Named Insured and its Consolidated

Subsidiaries and Affiliates) but does not permit the naming of

additional insured parties such as joint venture partners or contractors

on the policy. To use OIL to cover property under construction it may

be necessary to adapt contract wording (to indemnify contractors for

loss or damage to contract works in their care).

Q2. Does OIL agree to specific lenders’ clauses?

A: The OIL policy form is set and non-negotiable. OIL will issue

a Certificate of Insurance under which they will acknowledge a

lender’s interest by way of a loss payee provision but claims will

only be negotiated and adjusted with the Named Insured.

Q3. Does OIL impose a testing and commissioning requirement

on property coming off construction?

A: All property owned by the assured or for which the assured

is responsible under contract for repair or replacement is

automatically covered, subject only to annual Unmodified Gross

Asset declarations.

Q4. Can I select different deductibles for property and terrorism or

operating and construction?

A: OIL deductibles can be selected on a Sector by Sector basis (not

coverage or location specific). All property or risk within a given

Sector (for example, Refining and Marketing/Chemicals) takes the

same deductible. However, OIL can be utilized at varying levels

within an overall risk transfer strategy for different operational risks.

NOTE: If a different deductible (or limit) is required for a subsidiary

or joint venture, a split policy could be arranged (with different

risk profile), but only if they meet the criteria set forth in the Split

Policy section of this Companion.

Q5. Does OIL cover wells in the course of drilling at inception?

A: OIL does not require specific declaration of wells in order to

establish premium or cover. As such all wells are covered by

whichever OIL policy is in force at the date of the Occurrence (loss)

irrespective of when drilling may have commenced.

Q6. Can I change deductibles mid-term?

A: Assuming an OIL entry has been in place for three or more

years, or with the specific agreement of OIL, changes can usually

be made by giving 30 days notice. However, all change requests

are at the discretion of OIL. Windstorm profile changes are subject

to a review of updated windstorm data and are subject to OIL

approval. Premium changes will take five years to be fully realized

under the terms of the Lock-In Plan.

NOTE: OIL may, at its discretion, apply a warranty prohibiting the

purchase of underlying insurance if higher deductibles are selected.

Q7. Does OIL cover clean-up expenses?

A: OIL Insuring Agreement 3 (Seepage and Pollution Liability)

extends to cover reasonable expenses incurred (including liability

to any governmental authority/agency) for clean-up and removal

costs and expenses, but only to the extent reasonable and

necessary to minimize or remediate, or prevent further, injuries to

persons or loss or damage to property of others.

Q8. Does OIL accept single location entries?

A: Typically no, but if all other eligibility criteria are met, OIL could in

theory make an exception, although such entries are discouraged.


Q9. Can I include joint venture ( JV) partners under my OIL entry?

A: Assuming the OIL member is the operator or has a controlling

interest in a given project (or has other dispensation from

OIL), and if certain other conditions imposed by OIL are met,

the member can seek approval to cover 100% (or an amount

up to 100%) of the project ( JV) under their OIL entry. Cover

will only take effect upon declaration to OIL of the additional

JV assets of the project to be insured (if subsequently the OIL

member relinquishes its interest in the JV, cover for the JV partner

automatically ceases at that time without further notice from OIL).

Approval in writing from OIL is required prior to declaration of

additional JV partner assets and the member is required to provide

an indemnification agreement to OIL in respect of any claims

brought by the JV partner. Additional premium will be charged on

the increased ( JV partner) assets declared. However, OIL does not

permit the naming of JV partners as additional insured parties and

contract wording may need to be adapted.

Q10. Can I select a different premium basis for my refineries and

my onshore pipelines?

A: Under the Lock-In Plan, Premium options can apply on a

Sector-by-Sector basis so, for example, a member might select

Flat Premium (Pool A and B) for Pipeline Operations but Standard

Premium Only (Pool A) for Refining & Marketing/Chemicals.

Although this is not specifically stated on the Coverage Profile

Selection Worksheet issued by OIL, it is permitted. Please note

that in the case of an OIL prospect, OIL will need to understand

their actual profile to determine if varying premium options per

Sector is feasible based on the circumstances presented prior

to entry. Additionally, any coverage or premium profile changes

(elections) remain at OIL’s discretion.

Q11. What is the Offshore/Onshore Excess Pools default profile

for a member not declaring DNWS assets?

A: The default profile is US$60 million part of US$100 million

(the minimum limit) excess of US$2,500 million (the maximum

deductible). Members without DNWS assets will have 0% share of

the excess windstorm pools.

Q12. What is the difference between Unmodified Gross Assets

insured and Weighted Gross Assets?

A: Unmodified Gross Assets insured represents the total of

Unmodified Gross Assets (taken from members’ audited balance

sheets) before adjustment for operational risk and coverage

profile to produce Weighted Gross Assets used for individual Pool

Percentage and premium calculation.

Q13. Can my OIL entry be direct for some risks and reinsurance

for other risks?

A: Members can have their entry on both a direct and

reinsurance basis by using the Joint Policyholder Endorsement

(No. 3). For example OIL could be a direct insurer for the Energy

Company for US risks (Energy Company listed as the named

insured for US risks) and a reinsurer of the captive for non-US

risks (captive listed as the Joint Policyholder for non-US risks) or

vice versa. Furthermore, a member could have a split policy (see

above) with OIL as a reinsurer for the split policy only and a direct

insurer for all other risks.

Q14. Does OIL cover cargo?

A: Yes, but cover is available under commercial market forms

with a broader range of benefits such as war, loss of hire/ ALOP

(advanced loss of profits), inherent defect or gradual deterioration,

confiscation or expropriation, claims handling and certificates

for claims payable abroad scheme (delegated authority),

additional named insured benefit, guaranteed outturn, mysterious

disappearance/shortage, commingling/ contamination (which

may be covered by OIL if construed as property damage), and

special loading clauses. It is difficult, therefore, to evaluate the true

benefit of OIL for cargo beyond providing additional catastrophe

limit.

Q15. If OIL becomes insolvent, what are the obligations/rights of

the member?

A: Upon dissolution of OIL, members are entitled to their

dissolution rights (in addition to their single share worth

US$10,000). Also, a member’s financial liability to OIL is limited to

the premiums due to OIL (TWP).

Q16. If a member enters via a captive, is the TWP booked on

balance sheet at the captive level or at the parent level?

A: It appears that some members do either, i.e. captive or parent,

although perhaps it should probably be the captive as technically

they are the member. However, this question should more

appropriately be addressed to a member’s auditors.

Q17. With respect to ventilated (split) limits, can one layer be on an

external quota share basis and another layer on a 100% limits basis?

A: Yes (with agreement of OIL).

Q18. As OIL excludes sanctionable activities do I still need to

declare assets connected with such activities?

A: Yes. However, members are required to identify sanctionable

assets as part of the annual Unmodified Gross Asset declaration and

OIL deducts these assets before calculating Weighted Gross Assets.

Marsh • 35

Q19. Once Endorsement No.5 has been submitted to OIL does

this roll over each year?

A: No. Endorsement No.5 does not renew automatically and must

be resubmitted (and updated) each year. It is very important to

remember to do this.

Q20. How does OIL loss recovery vary under the different

premium options available (internal quota share versus external

quota share, for example)?

A: The attached exhibits clearly illustrate the impact on claims

at various levels for the different premium options that can be

selected – see ‘Rating & Premium Plan’ section.

Q21. When OIL eliminates Offshore Gulf of Mexico DNWS

coverage at January 1, 2018 will it still provide cover for Trinidad

and Tobago?

A: Yes. OIL will continue to provide a maximum limit of US$150 million

part of US$250 million for Trinidad and Tobago DNWS coverage.

Marsh would welcome your feedback on additional questions

to be answered and we may issue these periodically.

OIL OPTIONS – LOSS RECOVERY EXAMPLES FOR US$100 MILLION LOSSUS$100 million property damage loss 100% interest.

Deductible US$10 million (except where shown).

POOL B BASIS

(D/A 10 MILLION)

US$

POOL B BASIS

(D/A 100 MILLION)

US$

NO POOL B#

(RETRO)

US$

40% INTERNAL#

QS (SPO)

US$

100 MILLION

EXTERNAL QS

US$

CLAIM 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000

DEDUCTIBLE 10,000,000 100,000,000 10,000,000 10,000,000 10,000,000

RECOVERY 90,000,000 N/A 90,000,000 54,000,000** 72,000,000***

INDIVIDUAL PAYBACK N/A N/A 36,000,000* N/A N/A

TOTAL RETENTION 10,000,000 100,000,000 46,000,000 46,000,000 28,000,000

*US$90,000,000 x 40% = US$36,000,000 x 20% = US$7,200,000 annual

**US$90,000,000 x 60% = US$54,000,000

***US$90,000,000 x 80% (US$400 p/o US$500) = US$72,000,000

# Examples apply equally to DNWS losses

Marsh • 35




POOL B BASIS

(D/A 10 MILLION)

US$

POOL B BASIS

(D/A 100 MILLION)

US$

NO POOL B#

(RETRO)

US$

40% INTERNAL#

QS (SPO)

US$

100 MILLION

EXTERNAL QS

US$

CLAIM 260,000,000 260,000,000 260,000,000 260,000,000 260,000,000

DEDUCTIBLE 10,000,000 100,000,000 10,000,000 10,000,000 10,000,000

RECOVERY 250,000,000 160,000,000 250,000,000 150,000,000** 200,000,000***


TOTAL RETENTION 10,000,000 100,000,000 110,000,000 110,000,000 60,000,000

*US$250,000,000 x 40% = US$100,000,000 x 20% = US$20,000,000 annual

**US$250,000,000 x 60% = US$150,000,000

***US$250,000,000 x 80% (US$400 p/o US$500) = US$200,000,000

# Examples apply equally to DNWS losses



POOL B BASIS

(D/A 10 MILLION)

US$

POOL B BASIS

(D/A 100 MILLION)

US$

NO POOL B#

(RETRO)

US$

40% INTERNAL#

QS (SPO)

US$

100 MILLION

EXTERNAL QS

US$

CLAIM 410,000,000 410,000,000 410,000,000 410,000,000 410,000,000

DEDUCTIBLE 10,000,000 100,000,000 10,000,000 10,000,000 10,000,000

RECOVERY 400,000,000 310,000,000 400,000,000 240,000,000** 320,000,000***


TOTAL RETENTION 10,000,000 100,000,000 170,000,000 170,000,000 90,000,000

*US$400,000,000 x 40% = US$160,000,000 x 20% = US$32,000,000 annual

**US$400,000,000 x 60% = US$240,000,000

***US$400,000,000 x 80% (US$400 p/o US$500) = US$320,000,000

# DNWS losses capped at US$250,000,000 (per previous example)

Marsh • 37

For further information, please contact your local Marsh office or visit our website at marsh.com.

GUY BESSIS

OIL Technical Accreditation

(OTA) Certified


+971 4212 9128

[email protected]

AMY BARNES


(OTA) Certified


+44 (0) 20 7357 5215

[email protected]

ANGUS RODGER


(OTA) Certified


+44 (0)20 7357 3488

[email protected]

HANNAH JENNINGS


(OTA) Certified


+44 (0)20 7357 5529

[email protected]

This document has been prepared with the cooperation and assistance of

Oil Insurance Limited.

The information contained herein is based on sources we believe reliable

and should be understood to be general risk management and insurance

information only. The information is not intended to be taken as advice with

respect to any individual situation and cannot be relied upon as such.

In the United Kingdom, Marsh Ltd is authorised and regulated

by the Financial Conduct Authority.

Copyright © 2017 Marsh Ltd All rights reserved

GRAPHICS NO. 17-0556

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