S&P Global Ratings has said that although the Francis Scott Key Bridge collapse in Baltimore could cause the largest marine insurance losses recorded since Costa Concordia in 2012, it will be a manageable earnings event for the global reinsurance sector.
Image source: BBC
The ratings agency states that if the International Group of P&I Clubs reinsurance program is triggered, the reinsurance industry could face a maximum loss of $3 billion, with further losses possible via business interruption and other liability claims from the event.
“That said, although we view the collapse of the Francis Scott Key Bridge as a major marine loss, we anticipate that global reinsurers will be able to manage a loss of this magnitude,” says S&P.
The Singapore-flagged vessel, the Dali, part of Grace Ocean Pte. which collided with the bridge and caused the collapse, is an insured member of the Britannia P&I Club. Although Britannia provides its liability cover, it will be directly liable for only the first $10 million of the insurance claim. The 12 mutual clubs that are members of the International Group of P&I Clubs will be collectively liable for the next $90 million, via the pooling mechanism.
It’s understood that the International Group of P&I Clubs’ reinsurance program, which is led by AXA XL, covers $3 billion in losses per event, above the $100 million retention.
“It is difficult to estimate the cost of any additional liability claims, such as those for business interruption, at this stage. We continue to monitor how the liability claim progresses. If total losses exceed the $3.1 billion covered, we understand further losses will be mutually shared across IG clubs, with levies on the ship owners to pay these claims,” says S&P.
Currently, the grounding of the Costa Concordia in 2012 is the largest ever marine insurance loss at around $1.5 billion, and is a good example of how the reinsurance sector has managed net losses of a similar scale in the past.
Despite the losses from the Baltimore bridge event expected to surpass the Costa Concordia event and set a new record for the marine insurance sector, S&P feels that “the loss is manageable” and says that this is “further supported by the reinsurance sector’s strong underwriting performance in 2023.”
Analysts at Fitch Ratings have a similar view to S&P, stating that although this is a tragic disaster with significant economic repercussions, the event will have a limited impact on individual reinsurers’ earnings and thus is unlikely to have any impact on ratings.
John Neal, Chief Executive Officer of the specialist Lloyd’s re/insurance marketplace, said last week that the Baltimore bridge event provides an opportunity for the industry to show the value of insurance.
At the same time, analysts at Morningstar DBRS estimated that the insured losses could land between $2 billion and $4 billion.
While Julien Horn, Partner – Ports & Terminals and Logistics at broker McGill and Partners, warned that “this may be the largest example of port blockage seen by the insurance market in recent years.”
