Reinsurance costs for the big protection and indemnity clubs are set to rise by up to 20% because of the multibillion-dollar losses from the Baltimore bridge disaster, according to broker Marsh.
Reinsurers are preparing to pick up the biggest share of the bill after the 9,962-teu Dali (built 2015) destroyed the Francis Scott Key Bridge in March, leaving six people dead and temporarily closing a major US east coast port.
The reinsurers for the 12-strong International Group of P&I Clubs are said to be holding “multibillion-dollar reserves for the Dali loss” amid scepticism that the vessel’s owner and manager will be able to limit its liability for the disaster.
Singapore operator Synergy Marine and owner Grace Ocean have sought to limit their liability to $43.7m under an 1851 US law.
Lawyers for the City of Baltimore have challenged the move, and the companies face a slew of legal claims related to the disaster.
If the companies are unsuccessful in limiting their liability, the Dali’s P&I club, Britannia, will shoulder the first $10m and the clubs’ pooling arrangement for major losses would account for the next $90m, with the reinsurers set for the rest.
Some estimates have suggested that total losses could reach $4bn.
While the discussion is set to rumble on for years on the liability claim, the “reinsurers don’t appear to be that confident that will happen”, said Mark Cracknell, Marsh’s global head of P&I.
“They have placed, we are told, multibillion-dollar reserves on the claim and that’s what the renewal will be based on,” he said.
The reinsurance renewal programme for the International Group is agreed for February 2025. The cost is passed down to members and is calculated based on vessel type and other factors.
For some owners, including large LNG carriers, the cost of the mandatory reinsurance contract can be more than the P&I renewal.
“There are suggestions that the programme will likely rise by 15% to 20%,” said Marsh Specialty in its P&I club update 2024.
The industry says the Dali disaster has highlighted the strength of the P&I group system in the face of what is likely to be the largest-ever maritime insurance claim. Marsh says the impact on the clubs will remain “modest”.
Britannia’s share of the cost could be about $20m — but its returns from investments were three times that figure last year.
Its free reserves — a key measure of financial strength — stand at $550m, according to its latest reported figures.
Competition between P&I clubs saw their net premium income decline from 2017 to 2020.
The clubs responded to expected rising claims by increasing premiums that led to net income per gross tonne hitting record highs in 2023, according to Marsh.
But claims have not risen as expected — boosting club balances and putting the 12 International Group members under pressure to limit premium rises at the upcoming round, said Marsh.
“We can now see that the corrective rating actions undertaken by the clubs since 2020 appear, in the end, to have been overdone,” it said in the report.
Cracknell told TradeWinds: “We definitely don’t see any reason for general increases in P&I premiums, because they’re not merited by the data.
“I suspect the clubs will be relying more on the general uncertainty in the world and inflation still being a factor to support the need for premium increases — which we will be resistant to because we don’t think they’re justified.”
The predictions by Marsh are in line with those of other brokers. Gallagher said earlier this month that it expected double-digit increases in the International Group’s reinsurance contract in February and an average increase in annual premiums of 4.8%, the lowest for five years.
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