Background
The OIL group of companies is comprised of three mutual-like insurance companies: Oil Insurance Limited, Oil Casualty Insurance Ltd. and sEnergy Insurance Ltd. Each of the three companies provides insurance products specific to the needs of the energy industry. The OIL group provides its shareholders with highly cost-effective risk management tools and is a stabilising influence on the overall insurance marketplace.

Oil Insurance Limited (OIL) is a mutual insurance company dedicated to serving the needs of the energy industry. The company commenced operations on January 1, 1972 with 16 shareholders. By September 1, 2005, OIL’s membership had risen to 85 members. OIL is owned by and operated for its shareholders, all of whom are engaged in energy operations.

The fact that OIL’s policyholders are also its shareholders creates a management style that emphasises teamwork, open communications and consensus building. Industry ownership ensures fair treatment and a hedge against a frequently volatile commercial insurance market. 

OIL provides a broad form of coverage and insures risks such as physical damage to property, well control, and pollution liability.

Oil Casualty Insurance, Ltd. (OCIL) is an excess liability insurance company owned by the energy industry. OCIL provides excess general liability insurance and is exclusively dedicated to servicing energy companies.
           
The company was formed in 1986, at a time when the commercial markets had ceased to provide adequate insurance coverage for liability risks. The need for a new industry-owned vehicle specialising in liability insurance was recognised by concerned members of OIL.

sEnergy Insurance Ltd., the newest company in the group, provides excess business interruption and excess property insurance to the energy industry. As a mutual insurance company, sEnergy ensures fair and equitable treatment to all members and a hedge against a historically volatile commercial insurance market.

Spotlight – Underwriting approach
OIL uses a rating mechanism mutualised across its members to fund losses. The participating members pay back the losses of the group from the prior years: 20 percent from each of the prior five years. Allocations among members are based on audited gross assets, with weightings applied by industry sector.

This rating structure has allowed OIL to simplify its underwriting approach. With a commitment to the continual refunding of the pool, the company is less concerned about the underwriting of the specific property risks of each of its insureds. Instead the company focuses on the credit strength of the shareholder and its ability to meet its obligations.

Coupling this with a single policy form and a perpetual coverage term, OIL operates at a very low expense ratio (4.7 percent over the past 10 years). By contrast the commercial market operates at expense ratios often above 25 percent. This differential gives OIL a long term cost advantage over the commercial market.

Analysis
OIL was one of the earliest adopters of Bermuda. Like almost every subsequent wave of capital attracted to the Island, OIL was formed in response to a lack of adequate insurance coverage from the commercial market for property damage and pollution liability.

The company was founded with initial capital of $160,000. Shareholders’ equity at June 30, 2005 for the group was $1.0 billion, and would have been far greater had the company not returned some $800 million to shareholders as dividends between 1998 and 2001.

OIL provides $250 million in property damage limits to individual insureds on a net basis, the largest net line provided by any insurer for property coverage in the energy industry.

OIL offers shareholders several principal advantages: significant property capacity provided at a lower cost structure than the commercial market; broad coverage, including terrorism and pollution; greater contract certainty with standardised coverage provided through the shareholders’ agreement; and a perpetual coverage term.

The company has no annual renewal process. Instead, premiums are based on a statement of audited gross assets. This frees up the risk management resources that are typically devoted to compiling submissions and negotiating renewal terms. A strong networking community is created among fellow shareholders.

Because the OIL companies are operated by their shareholders, they attract business and new members by word of mouth. This sometimes makes the company seem lower-profile than some of its commercial competitors. OIL’s contribution to the success of Bermuda’s insurance sector should not be undervalued. Fifteen years before ACE and XL Capital were attracted to the possibilities of Bermuda, OIL had been showing that a major insurance company could operate efficiently and comfortably from the Island.

Senior management
Chairman: Gerard Naisse
President and CEO: Robert D. Stauffer
COO: Douglas A. Kline (OIL); George Hutchings (OCIL)
CFO: Roger P. Paschke

Financial data
(OIL) (half-year to June 30, 2005)
Gross premiums written: $606.8 million, up 62 percent
Net premiums earned: $306.7 million, up 64 percent
Net income: $34.7 million, down 22 percent
Shareholders’ equity: $1.0 billion, up 3 percent

Website
www.oil.bm