How LERCO Mastered Actuarial Modelling for Insuring Oil Facilities

From managing tail risks and asset-specific loss distributions to addressing long-tail liabilities, insuring oil facilities involves navigating intricate actuarial challenges. Operating in Libya’s volatile environment, the Libyan Emirates Oil Refining Company (LERCO) sought to optimise its insurance strategies for its refinery operations. To achieve this, LERCO turned to Qabas for advanced capacity building, focusing on developing the technical skills needed to address these complexities and enhance operational resilience.

The Situation

Insuring LERCO’s large-scale refinery operations requires addressing significant actuarial and operational challenges. The interconnected nature of refinery systems means that a failure in one key asset, like a compressor or high-pressure vessel, can trigger cascading losses across operations. Tail risks and extreme events, though infrequent, can have severe financial consequences and require precise modelling techniques, including extreme value theory and Monte Carlo simulations. Each asset type—ranging from rotating machinery to control systems—presents unique risk profiles, demanding customised insurance coverage aligned with operational criticality and maintenance schedules.

Long-tail liabilities add further complexity, with claims related to environmental impacts or latent defects potentially arising years after an incident. Actuarial strategies must account for extended time horizons and forecasting challenges. Additionally, LERCO’s predictive maintenance strategies, which rely on data to anticipate equipment failures, need to be tightly integrated with insurance provisions to minimise downtime and optimise part replacement cycles.

These operational challenges are compounded by Libya’s unpredictable geopolitical landscape, which introduces risks related to regulatory changes, market instability, and security concerns. In this context, optimising insurance strategies is essential for maintaining operational continuity and managing costs.

Our Approach

Qabas delivered a specialised actuarial training programme aimed at enhancing LERCO’s ability to assess and manage the complex risks inherent in insuring large-scale refinery operations. The programme was designed to translate theoretical actuarial models into actionable strategies tailored to the unique challenges of oil and gas facilities. The training focused on key actuarial principles and their application in a real-world, operational context, with an emphasis on improving risk quantification, financial forecasting, and strategic decision-making. Key areas covered included:

1. Risk Quantification and Prioritisation: Participants were trained in advanced actuarial techniques for evaluating asset risks based on operational criticality, failure probabilities, and the financial impact of potential losses. The training introduced structured approaches to categorising high-risk assets and aligning insurance coverage to reflect the relative exposure of each asset type.
2. Integrating Predictive Maintenance with Actuarial Models: The course covered methodologies for aligning predictive maintenance data with actuarial assessments, enabling participants to optimise insurance planning by factoring in equipment degradation patterns, failure forecasts, and scheduled maintenance cycles. This integration supports more precise reserve setting and reduces the likelihood of unexpected liabilities.
3. Business Interruption Modelling with Actuarial Precision: The training introduced actuarial methods for calculating expected financial losses from operational disruptions, incorporating downtime probabilities and interdependencies between critical systems. These models were linked with insurance structures to ensure coverage levels are directly aligned with the potential scale and frequency of interruptions.
4. Long-Tail Liability and Reserving Strategies: The programme provided in-depth insights into actuarial approaches for managing long-tail liabilities, such as delayed environmental claims and latent defects. Participants learned how to apply stochastic modelling and reserve valuation techniques to anticipate future claims and structure reserves accordingly.
5. Geopolitical Risk Adjustment in Actuarial Planning: Recognising Libya’s volatile environment, the training focused on dynamic risk modelling, teaching strategies for actuarially adjusting insurance coverage in response to regulatory shifts, market instability, and regional security risks. Participants explored flexible insurance structures that adapt to changing geopolitical contexts.

Implementation

The training was conducted through a mix of technical sessions, actuarial case studies, and hands-on workshops. Emphasis was placed on applying actuarial principles to LERCO’s specific operational context, using real-life scenarios to demonstrate how predictive analytics, risk modelling, and financial forecasting can be integrated into the company’s insurance strategy. Participants engaged in exercises designed to refine their ability to make data-driven decisions in high-risk environments.

Results

The training provided LERCO’s team with practical tools to enhance their insurance strategy. Participants now have a better grasp of how to prioritise asset coverage, align predictive maintenance with insurance, and manage long-tail risks in a volatile environment. The realistic and application-oriented nature of the training has enabled LERCO to implement more robust insurance practices that directly support operational reliability and cost efficiency.

This capacity-building effort has resulted in a more resilient and optimised insurance approach, tailored to the unique challenges of insuring critical oil and gas infrastructure in Libya’s dynamic environment.