Oil Insurance Ltd., a Bermuda mutual insurer, has had its Standard & Poor's financial strength rating affirmed after boosting premium income to help replace capital sapped by hurricane losses topping $1 billion.

The company is also expected to tap the capital markets for an additional capital injection by the end of the first quarter 2006, S&P said in a statement.

"The ratings on OIL are based on its unique retrospective rating plan, its active capital management, and the strong credit ratings on its members," said Standard & Poor's credit analyst Mohammed Ashab.

"Partially offsetting these positive factors are its limited competitive position, aggressive investment philosophy, and volatile operating performance."

Oil's 'A-' counterparty credit and financial strength ratings were assigned a stable outlook by S&P. The ratings action was based on Oil expecting to replenish its capital base above the $1 billion level by mid-year 2006, the ratings agency said.

Ratings firms assign ratings as indicators of a company's financial strength. Commercial insurance and reinsurance buyers pay close attention to insurance company ratings when deciding who to buy coverage from.

The affirmation comes after Oil's ratings were placed under negative watch, making them susceptible to a downgrade, at the end of August.

The warning was issued after the company ? which provides insurance coverage against losses to more than 80 of the world's leading energy companies ? sustained $1 billion in losses from Hurricane Katrina.

Oil was also hit by losses from Hurricane Rita, with both storms ravaging the Gulf Coast, where some Oil members have operations. Oil's losses from any one event are capped at $1 billion.

S&P said its positive ratings action on Oil took into account the company's board moving to replace the capital lost from Hurricane Rita by instituting a premium supplement in the amount of $900 million.

While Oil is still assessing the cost of Rita, it has determined the losses will increase substantially over the $396 million it has so far set aside for this event.

The company already tapped its members in September, adjusting 2005 premium pricing higher, for an additional $800 million because of the size of its Hurricane Katrina losses.

S&P said Oil collected about $400 million of the additional premium in early December.

Oil's outlook could be revised to positive, or raised, if it is successful in its capital-markets transaction, which is designed to ensure the company is not left in a capital crunch because of a delay between member payments, and when claims must be met.

Oil's members are contracted to pay back losses incurred, over a five-year period.

And Oil's payout of losses from the two catastrophes may take up to three years, because of the company's requirement that shareholders meet the expenses of putting right damage to operations before being reimbursed.

Given the extended time horizon Oil has before having to pay claims, Standard & Poor's said it believes the recent hurricane losses will not impair the company's cash position, or liquidity.

Conversely, Oil's outlook could be revised to negative, or the ratings could be lowered, if the company was to sustain major losses from a subsequent event, or if there was no action taken by Oil to restore the company's capital position, including a failure to complete the planned capital markets-transaction.