Rating Agencies React to BP’s Oil Spill; Best Revises Jupiter Outlook

June 4, 2010

The mounting financial costs for British Petroleum from the multiple impacts of the oil spill in the Gulf of Mexico have placed its formerly strong ratings in peril.

Financial rating agencies Fitch and Moody’s have both lowered their ratings on BP: Fitch to ‘AA’ from ‘AA+’ with a negative outlook, and Moody’s from ‘Aa1’ to Aa2 with a warning of a possible downgrade.

On the insurance side, A.M. Best Co. announced that it has revised its outlook to negative from stable of Guernsey-based Jupiter Insurance Limited, BP’s captive insurance company. However, Best did affirm Jupiter’s current financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa-.”

Best shares the concern of the financial rating agencies over the “potential impact on BP of the ongoing Deepwater Horizon oil spill in the Gulf of Mexico.” Although current estimates of the ultimate financial losses are wide apart – they range from $3 to $4 billion to over $30 billion – it’s clear that BP will be severely hit by the damages caused by the spill. It will take years to restore the Gulf Coast’s ecosystems. Meanwhile the economic losses suffered by commercial enterprises continue to mount.

Best stated: “Given the magnitude of this event, it is currently impossible to assess the impact on BP, both in terms of financial liabilities and reputational damage. Significant uncertainties are likely to remain for some time to come, and A.M. Best will continue to monitor the situation.”

In reference to Jupiter, Best said it considers that the captive’s financial position “is likely to remain strong following this incident. Although Jupiter has established loss reserves at its policy limit of $700 million, risk-adjusted capital still soundly supports the rating level.”

Source: A.M. Best

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