If you’re looking for yield in a market devoid of it and you’re into selling vol., why not go for the ultimate in risky yield enhancement strategies?
By that we mean selling insurance against terror attacks to Saudi Aramco which, according to sources who spoke to Reuters, “has been looking for cover from insurers including those based at Lloyd’s of London”.
The company – which will go public this month in what could end up being the largest IPO in history – suffered an estimated $533 million loss during the September attacks on the kingdom’s oil infrastructure, which temporarily knocked out around 50% of Saudi production capacity.
(Estimated IPO proceeds versus historical offerings)
The prospectus for the IPO noted that the company has not insured itself against all possible contingencies, a caveat which presumably includes an all-out war with Iran, something Crown Prince Mohammed in September suggested would lead to “a total collapse of the global economy”.
“We believe that there is a risk of further attacks on Saudi Arabia, which could result in economic damage”, Fitch said that month, explaining a downgrade.
“Available insurance options range from cover against a terror attack or sabotage through to full coverage, which includes war or civil war, along with compensation for the cost of business interruption”, Reuters wrote Wednesday, adding that while Aramco “insures much of its property itself through a so-called captive insurer, Bermuda-based Stellar Insurance”, and while the state-behemoth “also has an ‘excess of loss’ cover with international insurers for any property damage above $200 million”, it is not covered totally for war or terror attacks.
For what it’s worth (which in this case is the $69.1 billion Aramco paid in an incestuous tie-up), SABIC does have war insurance, one source said.
So, for the brave among you, step right up and insure Abqaiq and Khurais against the Houthis and the Quds.
Don’t worry, the company will have no trouble paying the monthly premiums…