Insured losses from the Costa Concordia cruise liner are well spread around the market, full details of the EUR395mn/$500mn hull insurance placement obtained by The Insurance Insider demonstrate.
The cruise liner ran aground and capsized off the Italian island of Giglio on 13 January.
While it is not the lead claims handler, Norwegian marine specialist Gard has the largest gross line of 12.14 percent across the vessel's hull and machinery (H&M) and increased value (IV) placements, equating to $60.8mn.
Gard is followed by company market lead RSA, whose 11.65 percent participation means its gross line is $58.3mn on the vessel.
RSA is followed by Lancashire with a gross line of 10 percent across the board, equating to a total exposure of $50mn. Lloyd's lead XL is next with an H&M line of 10.64 percent and a 4 percent share on the IV placement combining to produce gross exposure of $42.3mn.
Previously reported participation from European insurance giants Axa (6.10 percent) and Allianz (5.13 percent) are trumped by Chartis's Ascot Lloyd's operation, with a 6.82 percent share worth $34.1mn.
No other direct insurer has gross exposure above $20mn.
Immediately following the loss, vessel operator Costa Crociere's parent Carnival revealed the hull coverage has a deductible of approximately $30mn, making it another significant retainer of the risk.
Carnival said it self-insures for loss of use of the vessel.
However, in a market where reliance on reinsurance support is a
key feature, net retentions vary
Lancashire - renowned for its preference for retaining risk on its own balance sheet - is expected to retain circa $25mn, while Gard is understood to maintain a similarly high net retention of $20mn.
From these two the likely drop is considerable, with market sources placing RSA's net retention at just $5mn, Axa's at only EUR2.5mn and Allianz's in a similar range. Click to enlarge
Lancashire and Gard aside, the low average retentions mean that leading hull excess of loss (XoL) reinsurers are likely to be the major single net participants in the claim.
Last week Munich Re said it expected its claims burden from the sinking to be in the mid-double-digit million euro range.
Sources cite Swiss Re as a major lead in the global hull XoL market, but is yet to make an announcement on its likely exposures.
Meanwhile, after an initial report suggested that it was exposed to at least EUR10mn, Hannover Re gave a more detailed update today (23 January), saying hull claims will be around EUR30mn for its net account.
Hannover added that while liability claims are difficult to assess at present, it noted that a market loss running into the triple-digit EURmn could give it a net hit in a mid-double-digit EURmn range.
Overall, the loss is likely to be split into at least two parts. But while the EUR395mn hull programme is quite straightforward, the liability aspect for losses emerging from potential pollution or personal injury/death is less clear.
Jefferies International analyst Jonny Urwin commented today: "As it stands I'm forecasting EUR395mn ($500mn) for the hull (RSA, XL, Generali , Lancashire, Munich Re, and Hannover Re so far confirmed as on-line), and another EUR250mn for potential liability/environmental losses on protection and indemnity (P&I), which appears pretty conservative based on historic losses."
Urwin added: "Loss of life was fortunately pretty limited and it doesn't look like there was a great deal of personal injury so I don't think the loss is going to run as high as the $1bn predicted by some, even including a pretty conservative EUR250mn for liability and environmental losses given the amount of fuel on board."
The Standard Club is the lead P&I insurer with claims handling authority. It operates a quota share arrangement with fellow P&I club The Steamship Mutual, The Insurance Insider revealed last week.
This means the passenger and potential third-party liability cover emanating from the fatal accident will enter the international reinsurance markets by dint of the clubs' membership of the prestigious International Group (IG) of major P&I clubs.
The IG operates a pooling arrangement for losses exceeding $8mn and then buys a vast $2.06bn reinsurance protection in the London and international reinsurance markets in excess of $60mn.
Sources suggested that underwriters are likely to consider the hull programme as a constructive total loss, with repair and re-floating of the holed vessel unlikely given the ship's vast size and that it is winter. This means that the cost of wreck removal is likely to fall on P&I underwriters.
With pollution from fuel leaks still not a feature of the loss and pumping operations likely to commence shortly, removal of wreck constitutes the major potential cost for liability underwriters, with current estimates in a very high $80mn-$150mn range.
Underwriters are concerned that the ship's hull is currently lying on a steep ledge on the shore of the island and that the water surrounding the island is 400 metres deep.
The Italian authorities have made it clear that they expect the wreck to be cleared.
Other than the compensation for the likely total of 20 dead, the other major wildcard for liability underwriters is the potential for passengers to sue for compensation for the trauma of being involved.
At the weekend Italian consumer rights' association Codacons said it will launch a class action in Miami against Carnival, seeking at least $160,000 per passenger. Such a figure would cost some $512mn, excluding legal costs, if applied equally across the vessel's 3,200 passengers.
Marine market sources suggest that another factor that makes quantifying the loss more difficult is that Italy is not a signatory of the Athens convention that governs marine passenger liabilities, making levels of compensation a matter of individual debate.
Directors' and officers' market sources have said that Carnival's sharp share price drop following the disaster could trigger a further insured loss if investors were to allege systemic or fiduciary failures by the company's board.
Meanwhile, a final if extremely unlikely scenario suggested to this publication is that if the ship's captain were deemed to have been unfit to be in charge of the vessel or acted with gross negligence, hull underwriters may have the right to avoid the policy, pushing loss costs entirely onto the liability markets.
Click to enlarge