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Radhika Menon

Many overseas players into offshore projects; premiums up 40 pc last year

A FILE PICTURE of deep water rig, Sagar Samrat. - Paul Noronha

Mumbai , Sept. 16

Insurance of offshore projects has become big business with oil majors searching for crude and gas in Indian waters. Since, the bulk of these projects are reinsured, General Insurance Corporation of India is eyeing a significant expansion in reinsuring energy risks.

According to GIC's estimate, the gross domestic premium from this segment during 2005-06 was Rs 325 crore, a jump of 35-40 per cent over the previous year.

Mr R. Chandrasekaran, General Manager, General Insurance Corporation of India, said, "Following the New Exploration Licensing policy we are seeing a lot of foreign investments in exploration and production. Major players include Cairn Energy, BG and Gazprom."

Until 2004, the General Insurance Corporation of India would extend the capacity or reinsure just Rs 2 crore per risk as mandated (technically called obligatory cessions).

In 2005, GIC expanded capacity to $25 million (Rs 115 crore) and began aggressively reinsuring domestic and overseas offshore projects.

Private players such as Reliance and Aban Loyd Chiles Offshore Ltd have entered the segment and more could join the crowd with the government offering more exploration blocks.

"Energy activity being a high risk capital intensive business, we see increased potential for tailor-made insurance policies. They require large reinsurance capacity which GIC is in a position to provide," said Mr Chandrasekaran.

Insurance of offshore projects or upstream energy business is usually a menu of several covers including insurance against physical damage during exploration and drilling, control of oil wells, third party liabilities as well as loss of production income.

The cover sizes are large. For instance, ONGC's offshore insurance package is around $750 million, on a combined single limit. It covers risks at any point in time.

Opportunities abroad

GIC is also trying to walk the global market.

"In the international arena many of the large reinsurers have taken a hit after successive hurricane losses in the Gulf of Mexico and USA.

This has shrunk the capacity for energy business, throwing up spaces for new players like GIC to step in," said Mr Chandrasekaran.

"Similarly a lot of potential exists in areas in West Asia such as Iran and Syria where USA and London-based capacity have been withdrawn and GIC could move in," he added.

Besides West Asia , GIC also reinsures energy risks in Malaysia, Vietnam and Africa. It is estimated that demand for oil and gas in India will grow at an annual rate of 4-5 per cent in the coming years as against the world average of 2 per cent.

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