In 2014, OIL introduced “Experience Modification” (EM) into it’s rating model. The purpose of EM is to reward those members that have good loss records and surcharge those members with poorer loss records.
OIL believes this will incentivize members to select appropriate limit and deductible options, that are consistent with their risk profiles and will also make OIL more attractive to Prospects.
A Reserve Ratio is calculated for each Shareholder (Over a rolling 3 year period) and an Experience Modification Factor (EMF) is applied to the premiums of those members with a “reserve ratio” in excess of 150%. The EMF is capped at a maximum surcharge of 25% (although the Board has the authority to increase it up to 50%).
A new member can elect to enter OIL on a brokered or direct (non-brokered) basis.
If a new member elects to use a broker, OIL pays 15% brokerage commission for the first year of membership and invoices the broker directly. For the second and subsequent years members have the option to annually elect to have their OIL entry either brokered or direct.
If brokered is elected, the member advises the annual amount or percentage applicable for brokerage commission. The invoice will display both the gross and net premium.
To qualify for OIL membership, an energy company must have minimum gross assets of US $1 billion, and derive more than 50% of its gross annual revenues from energy operations, or have more than 50% of its gross assets devoted to energy operations.
Potential members must possess a minimum credit rating of either “BBB-” (S&P) or “Baa3” (Moody’s). Companies without external credit ratings can obtain a “shadow rating” or will be subject to financial analysis by OIL staff where they must pass 4 out of 6 ratio tests. In addition, they may be required to post acceptable security.
The maximum insurance limit per occurrence (for non-windstorm risks) is the lesser of 10% of Unmodified Gross Assets or $400M. This means that a member must have $4Bn of Unmodified Gross Assets to qualify for a $400M limit.
If a member has less than $4Bn of gross assets but still requires a $400M limit their assets will be deemed up to $4Bn.
There is no annual aggregate limit for non-windstorm risks. An Aggregation Limit of $1,200M (non-windstorm) is applicable to multiple shareholder claims arising out of a single occurrence.
OIL’s Windstorm limit is $150M part of $250M for losses that occur within the Designated Named Windstorm (DNWS) zone. A per shareholder annual aggregate of 2 times the $150M limit (i.e. $300M) also applies to windstorm risks.
In addition, an Aggregation Limit of $750M is applicable to multiple shareholder claims arising out of a single occurrence within the DNWS zone.
For windstorms that occur in regions outside of the DNWS zone (i.e. South China, North Sea, Australia etc.), the windstorm per occurrence limit is $400M (not $150M part of $250M) and the Aggregation Limit is $1,200M. However, once that region incurs a loss trigger event, defined as:
- A single loss event of at least $750M, or
- Cumulative losses of $1Bn over a 5 year rolling basis
That region’s coverage will be reduced to match the DNWS zone’s coverage the following year (i.e. Limit of $150M part of $250M and $750M Aggregation Limit).
Deductibles offered by OIL begin at $10 million and deductible options increase in $5 million increments. Deductible discounts are provided for layers attaching up to $750 million (non-windstorm) and $2.5 Billion (windstorm).
Deductibles are subject to Underwriter approval and may include deductible restrictions as determined by OIL.
The premium paid by all Policyholders is a function of the insured’s gross assets. These Gross Assets are adjusted for operational risk and coverage profile to produce Weighted Gross Assets which are used to determine a Member’s Pool %.
Premiums are determined based on a Member’s Pool % X Annual Losses X Experience Modifier.
The Lock-In Plan is OIL’s Rating & Premium model that was implemented January 1, 2010. The formula used to determine premium is a function of the past 5 year’s losses (20% a year) and Historical Pool %’s as opposed to Current Weighted Gross Assets used under the old premium plan.
A member’s final pool % in any given year is calculated using the Gross Assets reported as of December 31 from the prior year and is fixed. Annual premiums will take 5 year’s to fully reflect Weighted Gross Asset changes.
The Lock-In plan is designed to eliminate significant swings in premium and TWP, simplify the R&PP formula and reduce the periodic and unintended shifting of premium and TWP from one or more members to others.
Individual Retrospective Option – 9 Business Sectors (Non-windstorm)
Under this option, the member only pays the Standard Premium. In the event of a loss, the member is entitled to the full $400M limit but must pay a retro premium based on their individual losses.
The payback is on a straight-line basis. i.e. 20% a year payable over five years (in equal amounts)starting from the year following the booking of the loss reserve.
Individual Retro Option – Offshore/Onshore Excess Pools (Windstorm)
For the onshore/offshore excess pools, a member is entitled to a maximum per shareholder limit of $150M part of $250M limit which is recovered from the 60% Standard Pool. For the remaining $100M (40% of $250M), a member could: 1) Retain/self-insure, (2) Purchase in the commercial market, (3) Elect coverage from OIL under the Retro Plan or (4) Combine one or more of the above options.
If electing the Retro Plan for either or both the 8 business sectors (non-windstorm) and the excess pools (windstorm) members must select the amount of Retro coverage they wish to purchase, i.e. 10%, 20% 30% or 40% participation – for each.
OIL members are required to submit annual Gross Assets Declarations as at year end of the previous year, which are due to OIL by June 30th of the current year.
Gross assets are defined as Property Plant & Equipment (before depreciation) + Inventory (as per year end financial statements).
A member’s gross assets are used to determine their OIL premium.
Gross Assets insured represent the total Unmodified Gross Assets (taken from members’ audited balance sheets) before adjustment for operational risk and coverage profile to produce Weighted Gross Assets used to determine individual Pool % and premiums.
Assuming the OIL member is the operator, has a controlling interest or is a non-operator JV participant in a given project, the member can seek approval to cover 100% (or an amount up to 100%) of the project (joint venture) under their OIL entry subject to guidelines.
Cover will only take effect upon declaration to OIL of the additional JV assets of the project to be insured and is subject to Underwriter approval.
If subsequently the OIL member relinquishes operator status or its controlling interest, cover for the JV partner automatically ceases at that time.
OIL members involved in joint ventures/partnerships have access to the full limit for their interest. Meaning, the limit does not scale for interest. However, the deductible scales for interest (for non-windstorm perils only) subject to a minimum deductible of $1 million.
A member can come into OIL directly, or via its captive insurance company or other wholly owned subsidiary. You do not need to have a captive to be a member of OIL.
However, in the case of a State-owned energy company, or where there is local legislation in place requiring all insurance to be placed with a local (state-owned) insurance company, any such local insurance company would not be eligible for OIL membership.
However, OIL will reinsure a captive which is reinsuring a local or government-owned insurance company in respect of the interests of a member, as long as the captive is wholly owned by the energy company.
Any member electing to enter OIL via a captive insurance company must provide a parental guarantee to the captive.
A member may elect to have a split policy issued for its subsidiaries or joint venture interests. To qualify, the subsidiary/joint venture must meet the following criteria:
- Be a separate legal entity with its own financial statements.
- Have a separate insurance program.
- Operate as an independent profit center.
- Have autonomous risk management and insurance functions.
A split policy will allow the member to tailor its coverage profile to meet the specific needs of the subsidiary/JV, however the per occurrence limit is still shared with the original policy, i.e. OIL will not pay out more than the maximum limit of $400M to any one member for a single occurrence loss.
With respect to deductibles, a subsidiary/JV may have a different deductible from the OIL member, but only for assets not already declared as part of the OIL member’s entry.
All windstorm losses are mutualized by all members in the Standard Pool up to an annual $300M aggregate retention. Losses in excess of the $300M retention will flow into the Offshore and Onshore Excess Pools and will be mutualized by members that participate in these pools.
Please note, no windstorm losses will flow through the Flat Pool.
With effect from January 1, 2018, OIL will no longer offer Offshore Gulf of Mexico windstorm coverage. OIL will continue to offer windstorm coverage in all other Onshore and Offshore areas of the Atlantic Basin and the World.
In June of every year members must submit their Windstorm Declaration along with their normal Gross Asset Declaration. Assets are separated by DNWS Offshore and DNWS Onshore regions.
OIL does not require an Auditor’s Report to accompany the Windstorm declaration however it must reflect a signature of an officer of the company.