Citing a number of industry executives, Bloomberg recently reported that the Deepwater Horizon rig explosion – causing the largest oil spill in U.S. history – has prompted a reduction in the placement of insurance coverage for deepwater oil exploration.  According to the Bloomberg article, corporations may now need “to self-insure or exit deepwater fields.”

Increased premiums and the impracticality of insuring one-time, catastrophic loss events could mean deepwater operators will need to be entirely self-insured, said James Eck, vice president senior credit officer at Moody’s Investors Services Inc. in New York. “What insurer is going to want to put out $1 billion worth of deepwater insurance and only get paid $5 to $10 million after this? They may as well write a few more hurricane-insurance contracts,” Eck said.

BP’s Deepwater Horizon disaster is “a market-changing event,” said Dieter Berg, senior executive manager marine insurance at Munich Re, the world’s largest reinsurer and among those covering related losses. “Buyers and sellers of coverage will be reevaluating their appetites for offshore energy risk,” said Berg.

Insurers are beginning to re-evaluate how much they can risk to underwrite as the Deepwater Horizon disaster exposes higher liabilities than previously thought, said Gregory Thomas, head of offshore activities at Assuranceforeningen Skuld, an Oslo-based underwriter for deepwater contractors.

John Lloyd, chief executive of Lloyd & Partners reported in written testimony to the U.S. Senate that insurance cover available may decline as much as 30 percent in deepwater oil exploration area.  Moody’s also reports that Underwriters are charging as much as 50 percent more for policies covering offshore oil rigs in deep waters since the April 22, 2010 Deepwater Horizon disaster.

Stay tuned for regular updates.