North P&I Club estimates wreck removal costs for a car carrier that capsized in a US port could be in excess of $400m.
The eye-watering figure for the casualty involving the 7,700-ceu Golden Ray (built 2017), revealed in North P&I's annual earnings statement, is cited as one of the reasons it reported an underwriting loss for the year.
Initial estimates of the cost were around $200m, but that figure appears to have doubled.
Chief executive Paul Jennings said the wreck removal at Brunswick, Georgia, is one of the costliest the UK insurer has ever faced.
Complex operation
He said the initial pollution prevention measures and high environmental compliance costs in the US were behind the escalating costs.
“It was probably the location more than anything else,” Jennings said. “It is also a complex operation to remove more than 4,000 cars that are still on board the vessel.”
North P&I hopes that the wreck removal, which is being handled by US company T&T Salvage, will be completed by about September.
The insurer will bear the initial $10m of the cost of the operation, with the remaining sum shared among the 13 members of the International Group of P&I Clubs in a claims pooling system.
The claim will eat into the International Group’s reinsurance programme.
North P&I was also hit by the salvage costs related to the loss of the 57,000-gt conro Grande America (built 1997), which sank in the Bay of Biscay after a fire last year.
In the mutual's results for the policy year ending February 2020, it reported a combined ratio of 125%, indicating that claims costs and expenses were well in excess of premium.
Overall, free reserves dipped by $19.5m to $444m. A pension shortfall caused another drain on finances.
But the club had some more positive developments, including $64.5m earned from a 6.4% return in the investment markets that helped to support its bottom line.
Investment strategy
A new strategy, involving a wider spread of investments, also protected its investments against the recent slump in the stock markets caused by the coronavirus pandemic. Its investment portfolio had reduced by only 2% at the end of April in the current policy year.
Premium income was also slightly up on the previous policy year to $347m. The owned and chartered tonnage on the books stands at 230m gt.
Jennings said that although North P&I had faced a difficult claims year, it was basically in a good financial position.
“Two unusually large claims in close succession have led to a one-off combined ratio figure in 2019/2020, but North’s underlying business remains strong, resilient and healthy,” he said.
This story has been amended since publication to reflect North P&I earned $64.5m in investment returns during the last policy year.
