The blockage of the Suez canal by the container ship ‘Ever Given’ is expected to cause a reasonable sized insurance market loss and for reinsurance carriers is anticipated to create further pressure, according to rating agency Fitch.
The Ever Given became stuck in the Suez canal, one of the most important shipping routes in the world, on March 23rd.
Blown by strong winds, the bow of the Ever Given became stuck in the soft sediment of the canal along one of the banks and after swinging across the canal the container ship became grounded.
Repeated attempts to shift the Ever Given had been in vain over the last few days, until this morning when reports emerged suggesting the ship has been partially released and salvage experts suggesting there is a strong chance it will be able to be moved out of the way of other shipping later today.
Fitch Ratings has warned that, “The blocking of the Suez Canal and resulting disruption to global shipping is likely to cause a large loss event for the reinsurance industry.”
Adding, “This event will reduce global reinsurers’ earnings but should not materially affect their credit proles, while prices for marine reinsurance will rise further as a consequence of the container ship ‘Ever Given’ grounding in the canal.”
While the end of the blockage appears imminent, Fitch still believes that enough damage has been done to result in a meaningful marine market loss event.
“The ultimate losses will depend on how long it takes the salvage company to free the container ship completely and when normal ship traffic can resume, but Fitch estimates losses may easily run into hundreds of millions of euros,” the rating agency explained.
Incidents that damage or sink large container ships can easily result in US $1 billion or more of property losses, but there are largely related to salvage Fitch said.
As it’s now hoped the Ever Given will be able to continue forwards and clear the canal, claims related to the hull and cargo insurance, including salvage, should remain well below the billion dollar mark, Fitch explained.
However, there is a chance that the shipowner, Japanese firm Shoei Kisen Kaisha, Ltd’s (the ship is leased by Evergreen Marine Corp. (Taiwan) Limited) protection and indemnity club could face a larger impact from losses, and “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,” Fitch believes.
In addition, the Suez Canal authority could lodge a claim for loss of revenues Fitch notes, especially as more than 300 ships were stuck at either end of the canal, while others had re-routed to travel around Africa instead.
Fitch expects a large share of these eventual losses from the Suez canal blocking to be borne by the reinsurance industry.
On its own, this event is not expected to impact reinsurance firm credit ratings, being neutral, but viewed alongside impacts reinsurers are facing from the US winter storms, severe weather around the world, Australian flooding and continued COVID-19 losses, the Suez blockage will add further pressure to reinsurers first-quarter results, Fitch believes.
The upshot of this is expected to be more momentum beneath commercial insurance and reinsurance pricing, according to Fitch.
“The sequence of catastrophe events in 2021 will put additional strain on commercial insurance and reinsurance markets, pushing prices even higher in an already hardening market,” the rating agency said.
ILS market’s and ILS funds would largely be exposed to the Ever Given had it been a marine property event.
That could have impacted some providers of collateralized retrocessional reinsurance, as well as ILS funds that write some specialty lines business.
But, with the majority of losses looking set to come from the P&I side, that should minimise the potential for any leakage to ILS strategies, except perhaps through some quota shares of major global reinsurers, which could take a minor amount of attrition if the loss ends up being more significant than currently anticipated.
As with every event that affects global reinsurers, this all adds to the pressure to support pricing at renewals, which has a positive read-across for the ILS market as well.
Update: Reuters has reported that sources said high winds have blown the container ship back across the canal, before further attempts to move it had begun today and suggesting freeing the blockage may take a little longer than assumed earlier today.
Update 2: The Ever Given was eventually shifted from its stuck position and floated down the canal to a lake where shipping could pass it and transit along the canal resumed.