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Insurer: Economy Raises Hurricane Stakes

The economic storm that has ravaged U.S. credit markets and driven down commodity prices could exacerbate the economic fallout of any hurricanes that bedevil the energy sector this year in the Gulf of Mexico, an executive with insurance firm Marsh & McLennan Companies Inc. said last Thursday.

An active hurricane season could pose significant challenges. "Last year, many oil companies operating in the Gulf of Mexico had adequate insurance coverage and cash to cover the cost of -- and quickly make -- the significant repairs needed to address the damage caused by Hurricane Ike," said Bertil Olsson, Marsh energy leader.

"This year, however, with the price of oil and natural gas dramatically lower, cash flows are severely restricted -- and insurance coverage for hurricane damage to the oil industry is dramatically limited compared to a year ago. That could translate into significantly longer repair periods, which in turn could impact production volumes and domestic oil and natural gas supplies should we have an active hurricane season that damages the region's oil assets."

It is more important than ever to understand the challenges presented by severe storms, said Gerry Yurkevicz, associate partner in the energy practice of consultancy Oliver Wyman. "There is a clear need to clarify and focus response capabilities across locations, functions, crews and supply base partners -- as well as focusing on the development of response strategies and the organization for the energy infrastructure of the future," he said.

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