The Suez Canal blockage and its associated implications of disrupting global shipping is expected to cause large losses for the reinsurance industry, Fitch Ratings said on Monday.
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 ‘Ever Given’ grounding in the canal, according to Fitch.
In light of the partial floating of the vessel that was carried out on Monday, Fitch said that the ultimate losses will depend on how long it takes the salvage company to free the container ship entirely and when normal shipping traffic can resume.
However, Fitch estimates losses may easily run into hundreds of millions of euros.
“Accidents involving large container ships can cause property claims of over USD 1 billion, but these are mostly related to salvage. As the Ever Given should still be able to travel once freed, claims related to hull and cargo insurance, including salvage — which will be borne by the shipowner’s hull insurer — should remain significantly below this level,” Fitch illustrated.
On the other hand, the shipowner’s protection and indemnity club will probably also face 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, according to Fitch.
Additionally, they may face claims from the Suez Canal Authority itself for loss of revenues, especially that more than 370 ships are stuck at either end of the canal.
Fitch also said that environmental pollution through spillage of oil or oil products into the canal seems to have been avoided.
As a large share of these losses will probably be reinsured by a global panel of reinsurers, Fitch said that this large loss event should be neutral to their credit profiles.
“However, it will add pressure to global reinsurers’ earnings in the first half of 2021 – earnings that have already been knocked by catastrophic events such as winter storms in the US and flooding in Australia, as well as the COVID-19 pandemic and its related losses,” said Fitch.
In 2020, global reinsurers reported heavy declines in earnings due to paid claims and claims reserves related to the pandemic, according to Fitch.
However, underlying performance improved due to significant price increases in non-life primary insurance and reinsurance, and their capital positions remained very robust at the end of 2020.
Fitch stressed that the sequence of catastrophic events in 2021 will put additional strain on commercial insurance and reinsurance markets, pushing prices even higher in an already hardening market.
“The canal blockage therefore does not change our view that communicable disease exclusions in renewed treaties and a hardening market should lead to better results in 2021,” said Fitch.