European Environmental Liability Safety of offshore oil & gas activities Harko Kremers, sr specialist insurance techniques

Safety of offshore oil & gas activities

EU action on oil exploration and extraction Gaps and weaknesses regulatory framework at EU level – Environmental liability – Mandatory insurance scheme for offshore oil activities to be implemented via the ELD

Environmental liability Deepwater Horizon led the EC to assess whether the current European regulatory frameworks are adequate – Offshore exploration is less covered by international legislation – Parts of ELD are interpreted as to govern offshore oil & gas operations The commission will review possible need to close gaps in applicable legislation

Mandatory insurance scheme for offshore oil activities to be implemented via the ELD Insurance coverage in offshore sector is partial Insurance market does not provide sufficient cover for damages of the magnitude seen in Deepwater Horizon accident No international or European funds covering environmental liability

(re)insurers position on safety of offshore oil & gas activities System of ensuring sufficient financial solvency Voluntary system for the cover of environmental liabilities Geographical scope should be worldwide

System of ensuring sufficient financial solvency Insurance industry cannot provide the sole solution in protecting against oil spills – Immense financial capacity – Premiums multiply the potential consequences of most significant accident – European solvency law Long-tail effects of an oil spill – Consequences of the pollution may not be known for several years – Insurers may not be in a financial position to cover the liability for such an extensive amount of time Joint and several liability under ELD – Liability on all parties involved – All are to contribute financially to the remediation – If cover is given to some or all of them, the actual loss could be substantially higher than anticipated Companies in the oil sector should be free to compound the required solvency guarantee alongside the range of options available for covering potential environmental liabilities

Voluntary system for the cover of environmental liabilities Insurance industry can play important role in ensuring operations are solvent for potential liabilities – Financial security through insurance products designed for environmental liability, particularly losses falling under ELD – Free and voluntary markets enhance suitable cover for environmental liability risks – Voluntary system leads to mature and stable environmental liability insurance market in the long term Each company should be able to choose how to protect itself against environmental liabilities This remains within the spirit of the “polluter-pays” principle emphasised in the ELD A voluntary financial security scheme is the optimal way to ensure sustainable insurance products to meet the MS environmental liability needs

Voluntary system important for risks posed by offshore oil activities Companies in the oil sector should be free to decide either to go self-insured or to buy insurance – Damages incurred in the Deepwater Horizon incident far exceed the available capacity of the insurance market: Damages amount to approx. $ 40bn in total, including environmental liability Relative insurance market capacity approx. $ 1.5bn – Mandatory insurance schemes are restrictive in nature Difficult to match demanded cover Difficult to adept cover to complex risk profiles (e.g. an oil company) Oil companies are the most specialised experts within their sector, thus in the best position to assess their own appetite for insurance cover Many oil companies have much more financial capacity than insurers, thus an own ability to cover these risk

Geographical scope should be worldwide International liability regimes are already in place – Oil spills easily surpass the borders of the EU – Several national & international liability regimes are in place which apply to losses by oil companies – More likely to change existing conventions before changing the ELD – EU regulation will not stop severe marine pollution caused by oil exploration in nearby third countries Offshore oil sector is not covered by traditional ELD insurers – Main focus of ELD is onshore activities, thus EU-wide insurance markets developed environmental impairment liability policies accordingly – Markets are by no means mature enough to provide cover for risks of the oil sector activities – Oil sector liabilities are a highly specialised market Enhancement of insurability will help the whole system – Best practices in the oil industry can enhance insurability of risks and improve prevention of environmental damage – Focus on risk management is the best means of reducing environmental damage risks – Cooperation amongst operating oil companies can promote safer offshore oil operations

Conclusion Insurance industry strongly: – Advices against the introduction of a mandatory insurance scheme for the environmental liability risks posed by the offshore oil sector – Recommends to keep any liability and financial security scheme for offshore oil activities within the scope of existing multinational conventions

Harko Kremers Senior specialist insurance techniques Verenigde Assurantiebedrijven Nederland N.V. Reinsurance pools department: * Dutch Nuclear Insurance Pool * Dutch Terrorism Risk Reinsurance Company * Dutch Environmental Impairment Insurance Pool Tel.nr. +31 (0) Faxnr. +31 (0)

European Environmental Liability Safety of offshore oil & gas activities Harko Kremers, sr specialist insurance techniques