Moody's Investors Service has affirmed the short and long-term debt and insurance financial strength ratings of Bermuda-based Oil Insurance Limited (senior unsecured debt at Aa3) on the heels of the company's announcement that it will record about $1,036 million in incurred fourth quarter losses and loss reserves.

OIL's losses arise from property damage claims from Hurricane Ivan and an oil platform explosion in the Mediterranean Sea, as well as for potential pollution claims arising from MTBE seepage into groundwater supplies. Total losses for 2004 of approximately $1.2 billion are expected to reduce OIL's shareholders' equity to approximately $1 billion from $1.5 billion at year-end 2003. After losses, the company expects to have approximately $1.8 billion in claims-paying resources available, which includes the proceeds from the issuance of the company's subordinated debt, as well as the available amount at Catalyst Capital, both of which qualify as statutory capital for Bermuda regulatory purposes.

Mooday's has affirmed the Aaa assigned rating and Aa3 underlying rating on the insured floating rate notes of Catalyst Capital Ltd., a $500 million contingent capital facility sponsored by OIL. The outlook for the ratings is stable.

Moody's said: "OIL's ratings and stable outlook reflect the company's unique retrospective loss recovery funding structure, its strong membership support from the world's leading petroleum and energy companies, its efficient operations and its strong internal liquidity profile."

OIL writes property damage, well control and pollution liability insurance for its 83 member petroleum, gas, energy, chemical and mining companies located in the United States, Canada, Europe, Australia, Latin America, the Middle East and South Africa.

Moody's said: "OIL's retrospective rating and premium plan mutualizes policy losses and requires that all losses experienced by the company be fully repaid by its members over a five-year period based on each member's allocable portion. Any uncollected amounts are required to be reallocated among the remaining members of OIL. The ratings also consider the fact that OIL's senior debt obligations (including its extendible floating rate notes and extendible commercial notes) are unconditionally guaranteed by OIL's investment subsidiaries, Oil Investment Corporation, Ltd. and Oil Investment (Barbados) Ltd., and rank senior to its policyholder liabilities. OIL's investment subsidiaries held approximately $2.8 billion of invested assets at September 30, 2004.

In the next few years, Moody's expects OIL to generate significant amounts of capital as premium levels are anticipated to substantially exceed expected losses. The rebuilding of its capital position could be delayed as OIL remains exposed to natural and man-made catastrophes and pollution losses, as well as the potential for volatility in its investment portfolio, due to its sizeable equity investment allocation. Moody's expects OIL to maintain GAAP shareholders' equity of at least $700 million. If the company's shareholders' equity were to fall below this level, Moody's would likely place OIL's long-term debt and insurance financial strength ratings under review for possible downgrade.

For the nine months ended September 30, 2004, OIL reported net income of $174 million. As of September 30, 2004, OIL had shareholders' equity of $1.7 billion.