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Market escapes political violence loss from Saudi oil attack

Oil pipe line valve in front of  Saudi Arabia flag

The drone and missile attacks on a Saudi Arabian oilfield and processing facility are unlikely to result in political violence losses, The Insurance Insider can reveal. 

However, it is possible the insurance market will pick up some losses as a result of contingent business interruption (BI). 

Saudi Aramco, the oil company that owns the Khurais oilfield and Abqaiq processing facility hit by drone and missile attacks, does not buy a standalone political violence policy, according to sources. 

There is scope for a loss from a $200mn all-risk policy covering a power plant at the Abqaiq facility. This cover is led by Hiscox with a 15 percent line, with MS Amlin also on the slip. It is understood that JLT brokers the policy. 

Sources said that the broker has told the market the plant is undamaged. However, the policy has a denial of access sub-limit – typically set at around 10 percent of the total policy limit – which provides cover if the plant cannot be accessed.  

The policy also has a BI deductible, which sources say could minimise the contingent BI impact.  

There is also an all-risks policy for some of the facilities on the site, which is brokered by Aon, though this is understood to have a war exclusion and losses therefore seem unlikely.  

There are policies held by companies that have Aramco in their supply chains that have exposure to contingent BI claims, but the company has said it expects to return to full capacity by the end of September and will use reserves to minimise BI. 

The government-owned oil company also has a captive called Stellar Insurance, which covers energy onshore and offshore property, general liability risks, as well as associated BI cover. 

Sources told this publication that it is likely that the company would “self-insure” some of the damage caused by the drones and cruise missiles. One source said that within two days of the attack the site had made enough money to pay off the repairs. 

Aramco is the largest oil company in the world, reporting $111.1bn in net income in 2018, also making it the world’s most profitable company, according to Bloomberg.   

Various news outlets have reported that the oil behemoth is still planning on going ahead with a $2trn IPO, the largest in history, despite the attacks, with Reuters reporting that UBS, Deutsche Bank, Barclays and BNP Paribas have been hired as bookrunners. 

The attack, which occurred on 14 September, saw the Khurais oilfield and Abqaiq processing facility, the largest in the world, hit by 25 drones and cruise missiles. 

The US government said there were at least 17 points of impact at the two sites, including some storage tanks.  

The Houthi rebels from Yemen claimed responsibility for the attacks but increasing scrutiny is being focused on Iran as the perpetrator by Saudi Arabia, adding confusion as to whether this would classify as a terrorism loss or be excluded as a warlike or hostile act by a foreign government. 

Saudi officials said nearly half of the country’s oil production had been disrupted, equating to 5.7 million million barrels a day, or 5 percent of global production. 

The attack caused oil prices to increase by up to 15 percent on 16 September, peaking at around $69 a barrel – one of the biggest one-day rises for decades.  

Oil prices have since decreased and now sit at around the $64 per barrel mark.  

Saudi Aramco president and CEO Amin Nasser has said that capacity at Abqaiq and Khurais will be fully restored by the end of September and that production at Khurais had resumed 24 hours after the attack.  

He added that Abqaiq is producing around two million barrels per day and that “not a single shipment to an international customer has been or will be missed or cancelled as a result of these attacks”. 

Marsh pointed out in May that energy suppliers may be at an “elevated risk of one-off attacks”, highlighting increased terror risk for Western companies operating in Saudi Arabia. 

Aramco, Hiscox, JLT and Aon declined to comment.  

MS Amlin declined to comment.

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