The reinsurance market breathed a sigh of relief this morning as the Ever Given was finally dislodged from the banks of the Suez Canal, but analysts at Fitch Ratings have warned that a “large share” of industry losses stemming from the disruption will probably be reinsured.
Latest reports suggest the container ship was mostly cleared of the canal bank earlier today before high winds prevented authorities from moving the vessel on.
However, Reuters says that the ship’s bow remains afloat in the water despite its change of position, and confirms that the vessel has not become regrounded.
Fitch considers the disruption to the vital trade passage to be a “large loss event for the reinsurance industry” despite the success of rescue efforts in freeing the ship faster than some had fearer.
The rating agency believes the incident will reduce global reinsurers’ earnings but should not materially affect their credit profiles, while prices for marine reinsurance will rise further as a consequence of the container ship’s grounding.
Egypt’s vital trade waterway has been completely blocked since Tuesday, resulting in a backlog of 367 vessels that are currently waiting to pass through.
The Ever Given – a 400m-long, 224,000-tonne container vessel – became lodged diagonally across the canal after losing its ability to steer en route from Yantian to Rotterdam.
As we previously reported, estimates showed that the disruption caused by the blockage was impacting global trade by between $6 billion and $10 billion per day.
And specialist broker McGill and Partners estimates that the re/insurance industry could be looking at costs in excess of $100 million due to the Suez obstruction.
Fitch notes that this large loss event will not significantly impact reinsurer’s credit profiles when viewed in isolation. However, it will likely add pressure to H1 earnings, which have already been knocked by catastrophe events such as winter storms in the US and flooding in Australia, as well as by additional coronavirus pandemic-related losses.
Its comments come alongside analysis from Morgan Stanley, which asserts that P&C industry losses from the blockage “appear quite manageable,” and should cause “minimal” insurance impact.
Accidents involving large container ships have the potential to cause property claims of over $1 billion, Fitch says, but as the Ever Given seems to have escaped mostly unscathed, claims related to hull and cargo insurance, including salvage, should remain significantly below this level.
What could drive insurance and reinsurance losses, however, are potential claims from the owners of the cargo on the Ever Given and of the other ships that are blocked in the Suez Canal for losses related to perishable goods and supply chain disruptions, as well as possible claims from the Suez Canal Authority itself for loss of revenues.
On average, nearly 50 vessels pass along the Suez Canal every day under normal circumstances, although at times the number can be much higher than that, with about 12% of global trade passing through the 120-mile canal.