Reinsurers set to bear brunt of costs for Suez Canal groundingPosted On: Apr. 8, 2021 9:00 AM CST
(Reuters) — Reinsurers are set to foot most of the bill for the grounding of the ship that halted traffic in the Suez Canal, industry sources said, with payouts expected to run into hundreds of millions of dollars.
International supply chains were thrown into disarray when the 400 meter (430 yard) Ever Given ran aground in the canal on March 23, with specialist rescue teams taking almost a week to free the vessel.
Around 400 vessels were affected by the canal’s closure, which led to some having to divert around Africa to get supplies to global markets.
Ships typically have protection and indemnity (P&I) insurance, which covers third-party liability claims including environmental damage and injury. Separate hull and machinery (H&M) policies cover vessels against physical damage.
Alan Mackinnon, chief claims officer with UK Club, the Ever Given's P&I insurer, said it expected a claim against the ship’s owner from the canal authorities for possible damage to the canal and for loss of revenue, and separately claims for compensation from some of the owners of the delayed ships.
“I expect we will get a claim from the Egyptian authorities quite soon and the claims from the other shipowners will trickle in over the coming months,” Mr. Mackinnon told Reuters.
Suez Canal Authority Chairman Osama Rabie said last month that losses and damages from the Ever Given blockage could reach around $1 billion but that the actual amount would be calculated after the investigations, though it was unclear when these would be completed.
The UK Club will cover the first $10 million of P&I losses.
Beyond that, the wider pool of P&I insurers will cover up to $100 million, at which point reinsurers such as Lloyd’s of London step in for up to $2.1 billion of claims. P&I insurers would contribute for part of a further $1 billion of cover.
When asked if claims could reach the upper levels of cover at $2.1 billion to $3.1 billion, UK Club's Mr. Mackinnon said “we are confident we are not in that territory at all.”
“This is not an existential moment for the P&I sector. It may be a large claim, but we are structured to deal with large claims.”
Analysts at DBRS Morningstar said that total insured losses "will remain manageable given the relatively short period of time that the canal was blocked.”
Lloyd’s of London last week said the incident would likely result in a “large loss” for the commercial insurance and reinsurance market of at least $100 million.
Yumi Shinohara, deputy manager of the fleet management department with Japan's Shoei Kisen, the owner of Ever Given, said it had not received any compensation claims yet.
Container ships of the Ever Given's size usually have H&M insurance limits of $100 million to $140 million, brokers say.
An insurance source in Tokyo, who declined to be named, said the three Japanese H&M insurers would pay for salvage costs and any repair fees for the hull. Mitsui Sumitomo Insurance, the main Japanese hull insurer for the vessel, declined to comment.
Other insurance sources said the Japanese hull underwriters would also spread their exposure with reinsurers.