According to a recent Dow Jones News Service article, leading insurance companies have recently stated that they do not expect the Deepwater Horizon explosion in the Gulf to be a catastrophic event for the so-called “upstream” insurance market.  The upstream insurance market, which sells coverage to companies that are involved in the search for, development and production of oil, operates in its own niche of the property and casualty insurance industry collecting roughly $2.5 billion a year in premiums.

The Deepwater disaster could leave the upstream insurance market with a total loss of roughly $1 billion, according to Jim Pierce, chairman of the Global Energy Practice at Marsh & McLennan, as named in the article.  While this loss seems significant, the Pierce noted that the upstream insurance market lost many times more that amount from Hurricanes Katrina, Rita and Ike.  One reason for the reduced insurance losses is that BP did not purchase insurance, but chose to insure itself, partly through a captive insurer, which itself did not buy reinsurance.  The Dow Jones article notes that for these reasons, and a heavy reliance on reinsurers, it appears that few of the upstream insurers have dropped out of the business.