Standard & Poor’s Ratings Services affirmed its “A+” counterparty credit and financial strength ratings on OIL Insurance Ltd. (OIL) and removed the ratings from CreditWatch negative where they were placed following a downgrade on May 9, 2002. The outlook is negative.
Obligations to repay underwriting losses are joint and several in all relevant respects and shared by many of the largest energy companies in the world. The obligations succeed their membership in OIL and constitute a modest share of their collective net worth. Capital adequacy is scored following a catastrophe risk charge of more than $1 billion, in addition to standard asset and other capital charges.
The negative outlook reflects the capital adequacy ratio’s (CAR) potential to decline further before the retrospective payments are collected. S&P will continue to closely watch operating cash flow, underwriting and investment results. To the extent that there are adverse trends, the rating could decline.
OIL is expected to generate improved ROR, with premium income rising significantly in 2002 and prospectively to recoup 2001 and subsequent losses. Liquidity requirements and cash flow are more uncertain in the short term, but are expected to catch up to losses in the next 18 to 30 months, with portfolio liquidations supporting cash flow as necessary in the interim. Management expects outstanding short-term debt to remain less than $250 million.
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