Captive insurer gets downgraded after BP’s rating falters

Standard & Poor's cut its outlook on BP’s Guernsey-based captive Jupiter Insurance to negative from stable because of its parent firm’s problems over the Deepwater Horizon oil rig caused it to be downgraded to negative.

Moody's also downgraded a number of ratings on BP and its US operation BP Corporation North America and warned of further possible downgrade.

Parent sets captive’s rate

S&P said: “The outlook revision on Jupiter is not due to any changes to the stand-alone characteristics of the company despite the not yet quantified exposure. Jupiter has a $700m per occurrence limit.

“As Jupiter qualifies as a captive insurer under our rating criteria, we rate it at the same level as its parent. The ratings on Jupiter will therefore move in lock step with those on BP. The negative outlook on Jupiter reflects that on its parent.”

Moody's said its downgrade was on “the expectation that the protracted oil spill in the Gulf of Mexico, caused by the explosion on the Transocean Deepwater Horizon drilling rig, will result in significant containment and clean-up costs as well as litigation costs.

“Moody's expects these costs to weigh significantly on BP's free cash flow generating capacity and to constrain its ability to focus on other key areas of the company's business in the near to intermediate term.

More detail needed

Moody’s said it needed to carry out “a more complete assessment of the various scenarios the group may have to contend with in terms of the ultimate containment and clean-up costs, the allocation of liability for the Macondo accident, and mounting litigation exposure”.

This would include “the mounting political pressures it faces from the US authorities, as well as the significant overhang of litigation exposure and financial liability that is likely to persist in the years to come”.