A combination of factors continues to accelerate the hardening process in the mining insurance market, including an “atrocious” loss record, unprofitability of mining and related sectors and major insurer retrenchment, according to a Willis Towers Watson PLC report.

The brokerage previously described the mining insurance market for property risks as being “on the brink of hardening after 14 years of incessant softening of terms and conditions,” the report published on Wednesday stated. “Perhaps, after 14 years of experiencing the same overall macro effect of (re)insurance market over-supply, we had reason to be cautious before we pronounced the end. 12 months on, we now have no such qualms.”

A combination of factors has brought all sections of the mining market – the direct and facultative, major specialists and regional insurers – “together in their determination to bring about a significant and permanent market turnaround” in the last year, according to the report.

According to WTW, “the balance of power in the international mining insurance markets has now tilted firmly in favor of the insurers” as “that rosy position for buyers has now turned around. Indeed, following the tentative rating rises achieved this time last year, underwriters are becoming increasingly confident of securing further increases as 2019 has progressed.”

In 2018, it appears that the market sustained about $1.3 billion in claims – with claims reported to date representing only about 50% of the premium income – compared with estimated global premium income of about $800 million, according to WTW.

“So in terms of straightforward results alone, there has been plenty of incentive for insurers to increase their resolve to press for rating increases,” the brokerage said.

In addition, the recent Decile 10 performance improvement initiative instigated by Lloyd’s management – prompted largely by a combined ratio of 110% for property and other classes falling into unprofitable territory – has left the D&F market with “no choice,” but to either offer more improved terms from an insurer’s perspective or have their portfolio closed down by senior management, according to the report.

The availability of reinsurance protection for some D&F insurers has become “increasingly restricted as this sector has become more unattractive to some significant reinsurance markets from a strategic perspective,” the report stated. “So with the reinsurance market as a whole tightening up, some insurers have now reviewed their mining portfolio and decided to withdraw from this sector completely, while others have been more circumspect and elected merely to cut back on their participation in this class.”

The specialist mining market has trenched. “The most significant change in underwriting philosophy in this market has come from (American International Group Inc.) While in the past their strategy has been characterized by writing a significant - or even 100% - share of a given portion of the program, we have now seen AIG cutting back heavily on such participations. Where this has not been anticipated by buyers and their brokers, it has led to some serious placement challenges, with brokers often having to supplement lost capacity with underwriting support from insurers at very different terms than had been negotiated the previous year,” according to the report.

An AIG spokesman could not be immediately reached for comment.

The global political situation revolving around climate change, its impact and the reasons for it and catastrophic incidents in the mining industry are directly affecting the mining insurance market, Günter Becker, head of mining at Munich Re, said in the WTW report.

“Bluntly said: no investment in coal – no insurance for coal risks and vice versa,” he said. “And the fact that we insurers and reinsurers are covering both sides, the risk taking and investment side, makes us an obvious ‘target’.”

Public perception of the mining industry is that environmental, social and governance issues have not been high on its agenda, Mr. Becker said.

“However, the mining industry needs to overcome the perceptions … and I am confident they will do so,” he said. “This will allow us underwriters to concentrate on what we know best - providing sustainable insurance cover for a sustainable industry.”

While the mining liability market was already showing signs of hardening, the Brumadinho dam collapse in January “marked a notable change in underwriting appetite for the mining sector,” Matt Clissitt, director at Willis Towers Watson Natural Resources London, said in the report. The dam rupture killed nearly 250 people and has sparked an effort to establish global rules for building and inspecting such facilities.

“The overriding result has been a polarization of the market, as insurers have either looked to reinforce their position as risk transfer providers for mining clients or pulled out of writing mining risks altogether,” he said.

A number of insurers, particularly those with modest mining portfolios, have stopped writing mining accounts completely and many are significantly cutting back on line size, while those insurers continuing to write mining business do so with “rigorous” information requirements and “are happy to walk away from risks where the information provided is deemed to be insufficient or unsatisfactory” and average rate increases are “significantly greater for mining risks than in other sectors,” he said.