Moody's stated that the above rating actions stem from the company's announcement that it expects to incur an aggregation limit loss of $1 billion from Hurricane Katrina and from Moody's revised assumption parameters related to the frequency and severity of insured losses at the company. The rating agency noted that the decisive action on the part of OIL's Board of Directors to substantially increase the company's provisional premium rates for 2005 mitigates the strain placed on the company's capital position caused by Hurricane Katrina losses.
As of June 30, 2005, OIL had approximately $1.8 billion in statutory capital, 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. As a result of the increase in the provisional premiums for 2005, Moody's expects OIL's 3Q2005 shareholders' equity to remain above the $500 million minimum net worth covenant thresholds that exist in the company's extendible floating rate note and extendible commercial note programs. Moody's noted that at year-end 2004, OIL was required to maintain minimum statutory capital and surplus of approximately $171 million under Bermuda insurance regulations.
Moody's notes that OIL is likely to incur significant additional losses from Hurricane Rita due to the company's exposure to oil, gas and energy-related property damage claims from its members in the Gulf of Mexico and along the Gulf Coast of the United States. OIL's maximum exposure to losses from Hurricane Rita would also be capped at $1 billion, which is the company's aggregation limit for losses arising from one event.
While OIL's losses from Hurricane Katrina are substantial, and additional losses from Hurricane Rita could equal those from Katrina, Moody's believes OIL's structural features mitigate the impact of the losses since the company'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. Moody's stated that OIL's membership currently consists of 85 petroleum, gas, energy, chemical and mining companies located in the United States, Canada, Europe, Australia, Latin America, the Middle East and South Africa. Any uncollected amounts are required to be reallocated among the remaining members of OIL. The company has structural features which provide protection against its members exiting the arrangement before their contractual obligations have been fulfilled. If any of OIL's members declare bankruptcy, OIL would have an unsecured claim against the assets of the bankrupt entity for any unfunded premium obligations. Moody's also noted that the ratings 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 subsidiary, Oil Investmen