Fitch Ratings Assigns 'F1' S-T Rtg to Oil Insurance Ltd.

Business Editors

CHICAGO--(BUSINESS WIRE)--March 18, 2002

Fitch Ratings has assigned 'F1' ratings to Oil Insurance Ltd.'s (OIL) U.S. commercial paper program and Extendible Commercial Note (ECN) program.

The ratings reflect OIL's strong capitalization and low operating leverage, reasonable financial leverage, favorable liquidity profile, leading market position, and ability to recover losses from members. Weighted against these positives are underwriting volatility inherent in the property catastrophe line, concentration risk in the petroleum industry, and high allocation of equities in its investment portfolio.

Capital is very strong for the rating category and risk profile of the company, even with the payment of $800 million of dividends since 1998 and a $500 million decline in shareholder equity through three-quarters of 2001. Capital was $1.5 billion at September 2001, after holding at around $2.0 billion since 1997.

OIL's capital structure is prudent with the capital mix consisting of 17% debt and 83% common equity at Sept. 30, 2001. The outstanding debt is all short-term, consisting of private placement commercial paper and ECNs, and is utilized for funding loss payments on a short-term basis. The combined loans outstanding by OIL are restricted to $500 million. Liquidity of the program is supported by back-up credit facilities and the company's investment portfolio.

As a provider of property catastrophe coverage to the petroleum industry, operating results in any given period depend on the number and magnitude of catastrophes (natural and man-made), which can have an adverse impact on results and financial condition. Also, exposure to pollution liability creates an additional element of uncertainty. Operating results were extremely good in 2000 and 1999 with combined ratios in the 30% range, driven in part by favorable prior year loss development in pollution reserves. However, results were very poor through three-quarters of 2001 due to several new loss occurrences.

OIL does not individually underwrite risk, rather it carefully screens applicant companies to avoid adverse risk selection and assesses premiums based on sector risk factors and actual member losses incurred. This rating and premium plan results in a self-funding mechanism for losses that provides for capital replenishment and added long-term operating stability.

OIL's investment philosophy is viewed as somewhat riskier than that of other companies due to the high exposure of the portfolio to equities (50% of GAAP equity at December 2000). The potential for higher investment volatility was evidenced in recent years with investment losses suffered in 2000 and 2001, following significant investment gains in 1999 and 1998, due to swings in the equity markets.

OIL is a Bermuda domiciled mutual insurance company that provides catastrophe coverage to the energy industry, primarily petroleum, insuring physical damage to property, well control, and pollution liability. OIL is owned by 65 energy companies that are also its members/policyholders. The company also has two investment subsidiaries, Oil Investment Corp. Ltd. and Oil Investment (Barbados) Ltd.

Note: The noted rating was initiated by Fitch as a service to users of Fitch ratings. The rating is based primarily on public information.

Entity/Issue/Type             Action         Rating
Oil Insurance Ltd.
--Commercial paper            Assigned       'F1';
--Extendable commercial note  Assigned       'F1';
--Short-term issuer           Assigned       'F1'.