Thursday, 24 April 2014 | 20:15
SPONSORS
View by:

P&I Clubs to Bear Uncertain Liability Losses From Cruise Ship Disaster

Monday, 23 January 2012 | 00:00
The likely record insurance losses associated with the wreck of the Carnival Corp. cruise ship Costa Concordia off the Italian coast on Jan. 13 will have an effect on the global protection & indemnity marine insurance market on the liability side, while the property claims are expected to carry through to London market reinsurers.
Insured losses related to the wreck run as high as US$1 billion, a record for losses related to cruise ship disasters.
While London market insurers and reinsurers will cover the property losses, the liability costs -- a more difficult number to estimate at this point -- will be carried by the P&I clubs.
P&I insurers will be exposed to liability claims for passengers and crew, as well as any wreck costs should the ship be declared a total loss, said Catherine Thomas, director of analytics with A.M. Best Europe -- Rating Services Ltd. She added the P&I market would see a bigger loss if the ship's fuel were to begin to leak, as that would come under the liability cover for pollution.
"Lloyd's has a significant share of the marine market, so you would expect some of the marine claims to come through to the Lloyd's market," said Thomas. "The expectations are that given the size of the ship's parent, the participants on that policy will be fairly well spread across the market."
The lead insurers for the ship are XL Group, Assicurazioni Generali and RSA Insurance Group plc. But because most marine policies are written by syndicates of different companies and P&I clubs (a type of mutual formed by the operators themselves), the losses are expected to be fragmented and relatively easy for the industry to absorb, said Joy Ferneyhough, an analyst for Espirito Santo (Best's News Service, Jan. 19, 2012).
Ferneyhough places estimated losses for the disaster at between $500 million and $1 billion.
London-based Standard Club confirmed it is the lead protection & indemnity insurer for the stricken ship. A Standard Club spokesman said on Jan. 16 the club "has very limited information available at the moment" (Best's News Service, Jan. 16, 2011).
Liability will be largely covered by the P&I market. Thomas said 13 P&I clubs cover about 90% of the world's ocean-going tonnage. While one P&I club may be lead writer for a policy, any claim greater than $8 million will get pooled within the International Group of P&I Clubs, she said.
The pool is protected by external reinsurance for a claims that exceeds $60 million, said Thomas.
With the P&I clubs' fiscal year about to end with the end of February, Thomas said it is possible the Costa Concordia disaster could have a material impact on some of those results. But she cautioned it is too early to tell what that impact might look like.
"It is uncertain how much of the impact could fall to the hull side and how much on liability in the P&I market," she said. The impact would partly depend on whether the ship is declared a total wreck, with subsequent costs related to removal of the ship.
London market and other non-P&I companies can also feel the impact as reinsurers of the P&I clubs if the claims are big enough, said Thomas.
Abundant capacity has suppressed marine rates in recent years, and it is possible the Costa Concordia disaster will have an impact on future underwriting, said Thomas. "If the loss is well-spread throughout the market that is likely to prompt some rate increases," she said.
Source: A.M. Best Company
Comments
    There are no comments available.
    Name:  
    Email:  
    Comment:  
     
    In order to send the form you have to type the displayed code.

     
SPONSORS