ZURICH (Reuters) — Record hurricane damages in the energy sector last year mean there is now more demand for insurance than supply, the head of Swiss Re said yesterday, leaving the industry with a gap in risk cover.Oil production platforms and drilling rigs in the Gulf of Mexico were heavily hit by last year’s storms, causing demand among energy companies for risk cover to rise while insurers at the same time cut exposure.

“The mix of risk-awareness on the one side, which increases, and risk mitigation (by insurers) on the other side creates an imbalance,” said Jacques Aigrain, chief executive officer of Swiss Re.

Aigrain was speaking to journalists after a session of Swiss Re’s advisory panel, a group of experts discussing strategic issues with relevance beyond the financial industry.

The oil industry incurred an economic loss of about $15 billion from last year’s triple whammy of Katrina, Rita and Wilma, three devastating storms that made 2005 the costliest year for the insurance industry on record.

Premiums for catastroPremiums for catastrophe cover have sometimes more than doubled since that time and some insurers have stopped covering some of the worst-hit sites off the US coast altogether.

Raising prices would not close the gap and the industry needed new ways to cover risk, Aigrain said, because insurers would refuse to cover risks in areas where there was a particularly high concentration of value.

Some observers say insurers risk losing market share to others if they fail to find the extra billions of dollars needed to close the gap in risk cover, as companies may retain more risk themselves or governments may step in.

Aigrain declined to estimate the size of the insurance gap in the energy industry.

He also declined to elaborate on which alternative risk-cover tools are open to the industry.

Swiss Re has been a long-standing advocate of catastrophe bonds — paper that pays its holder a high yield and gives issuers such as Swiss Re the right to keep the principal sum in case of certain pre-defined large catastrophe losses.

The industry has also seen the rise of special purpose vehicles called sidecars, set up predominantly by no-frills Bermuda reinsurers, which attract investors seeking exposure in reinsurance without underwriting know-how.

Insurance gap looms for the energy sector