BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.
To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.
To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.
ISOLA DEL GIGLIO, Italy—Insurers continue to count the cost of the Costa Concordia cruise ship disaster and attorneys are preparing class action claims on victims' behalf, but experts say the impact of the tragedy on marine insurance rates is not yet clear.
The loss of the 126,214 ton ship, which ran aground Jan. 13 off the island of Giglio, Italy, shortly after setting sail on a Mediterranean cruise with 4,200 people aboard, could become the largest marine insurance loss on record, experts say.
The largest insured loss to date was the 1989 Exxon Valdez disaster, which cost insurers about $500 million, including extensive pollution costs.
At least 16 people died when the ship struck a rock and capsized. Late last week, Italy-based Costa Cruises offered e11,000 ($14,225) in compensation to passengers who were unharmed in the disaster.
The ship's captain has been charged with negligent manslaughter and placed under house arrest.
According to analyst estimates, insured losses could range from $500 million to $1 billion.
The cruise ship was insured in the international insurance and reinsurance markets and has liability coverage in the protection and indemnity market.
Aon Corp. was the insurance broker for the vessel's coverage, sources said. Aon declined to comment for this story.
Miami-based Carnival Corp. & P.L.C., the owner of Costa Cruises, said in a regulatory filing that it had insurance for damage to the vessel above a $30 million retention and third-party personal liability coverage above a $10 million retention. It is self-insured for the loss of use of the vessel.
Trieste, Italy-based Assicurazioni General S.p.A. and Hamilton, Bermuda-based XL Group P.L.C. are among the ship's hull insurers, sources said.
London-based RSA Insurance Group P.L.C. has a 5% line on the ship's hull program, which is thought to offer about e405 million ($523.7 million) in coverage, sources said.
Hamilton, Bermuda-based Lancashire Holdings Ltd. likely will post a $20 million to $30 million loss from the event, according to investment banker Jefferies International Ltd.
Hannover Re Group and Munich Reinsurance Co. confirmed that they also have exposure to the loss.
Munich Re said it expects to incur losses in the “mid-double-digit million euro range.” Hannover Re said it expects losses of about e30 million ($38.8 million) from the ship's hull and the extent of its liability losses was yet unclear.
“The assumption is that a market loss running into triple-digit millions could result,” the reinsurer said in a statement. “The total loss for Hannover Re—as a leading marine reinsurer—could therefore be in the mid-double-digit euro range.”
The London-based Standard P&I Club confirmed it was the lead P&I insurer for the ship.
In a statement, the Standard Club said it and another member of the International Group of P&I Clubs would jointly share the first $8 million of the loss beyond the retention, above which the claim is reinsured through the International Group's pooled reinsurance program with London and international reinsurance markets.
The full extent of insured losses will not be known until the liability picture becomes clearer and any environmental losses are known, sources said.
Last week, New York-based law firm Proner & Proner said it would, in conjunction with the Italian consumer organization Coordinamento delle Associazioni per la Difesa dell'Ambiente e dei Diritti degli Utenti e dei Consumatori, known as Codacons, file a class action suit in Miami against Costa Cruises, which operated the ship, seeking at least $160,000 for each passenger who was aboard the ship at the time of the disaster.
According to a legal source who asked not to be named, there may be challenges for claimants wishing to bring a suit in U.S. courts.
While the ship's ultimate parent is in the United States, the cruise operator is an Italian company, he said. Therefore it may be difficult to “pierce the corporate veil” and have the case heard in U.S. courts, he said.
In addition, while some passengers aboard the ship were U.S. citizens, recent case history has shown that this may not be enough to convince the courts that the case should be heard in the United States, he said.
The Athens Convention of 1974 limits awards that can be paid to victims of marine disasters, though Italy is not a signatory to the convention, said Marcus Baker, chairman of the global marine practice at Marsh Inc. in London.
A legal source noted, however, that the terms and conditions on Costa Concordia tickets effectively used some of the language of the convention and limited payouts to e70,000 ($90,500).
The impact of the ship's loss on marine insurance rates is less than clear at this stage.
James Eck, senior vp and credit officer at Moody's Investors Service Inc. in London, said the losses are not expected to badly hurt insurers' and reinsurers' capital. But the “earnings drag” from the event could impede capital growth for the affected firms, he said.
Ole Wikborg, president of the International Union of Marine Insurance, said the fragmented nature of the marine insurance market likely would mean that the loss would affect a limited number of insurers and reinsurers. Therefore, there would be no marketwide incentive to seek rate increases, he said.
Marsh's Mr. Baker said there is about $1.7 billion to $2 billion of global marine hull capacity. While the loss from the Costa Concordia may be large, it likely will not affect the industry's capacity greatly, he said.
And despite the tragic loss of the Costa Concordia, cruise ships generally are deemed to be very safe risks, he said.
While some Lloyd's of London syndicates may push for rate increases as a result of the loss and due to potentially higher reinsurance costs resulting from high catastrophe losses in 2011, a wholesale move to increase rates is unlikely. More likely, said Mr. Baker, is a greater sense of “caution” among underwriters.
He also noted that much of the marine business renewed at Jan.1 before the cruise ship disaster.
The loss could affect the reinsurance program for the International Group of P&I Clubs, but Mr. Baker pointed out that negotiations on the program, which renews Feb. 20, already are well under way and some business may already have been bound.
Any effect of the Costa Concordia loss, therefore, more likely would be felt during the 2013 renewal, he said.