Costa Concordia likely worst maritime insurance loss

LONDON/BOSTON Mon Jan 16, 2012 12:36pm EST

Furniture is seen inside the Costa Concordia cruise ship that ran aground off the west coast of Italy, at Giglio island January 16, 2012.  REUTERS/Guardia Costiera/Handout

Furniture is seen inside the Costa Concordia cruise ship that ran aground off the west coast of Italy, at Giglio island January 16, 2012.

Credit: Reuters/Guardia Costiera/Handout

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LONDON/BOSTON (Reuters) - The wrecked cruiseliner Costa Concordia could turn out to be the biggest insured loss in maritime history, analysts and industry experts said on Monday, with some suggesting insurers and mutual societies could end up shouldering $1 billion in losses.

The Costa, a multistory liner carrying over 4,000 passengers and crew, ran aground and capsized off Italy's west coast at the weekend, killing at least five and injuring dozens.

In the complex world of maritime insurance, there will be two issues to contend with: the clubs of cruise ship companies that insure each other for personal injuries, shipwrecks and environmental damage; and the consortium of insurers who underwrite the ship itself.

The ship is insured for 405 million euros ($513 million) by insurers including XL, RSA and Generali, industry sources said.

An RSA spokesperson said the company's exposure to the disaster was below 10 million euros, while a spokesperson for Generali said the impact on the company would be small.

XL's team at the Lloyd's of London insurance market has been working on the disaster since the weekend but has yet to come to any firm conclusions on cost or liability issues, according to a person familiar with the matter.

The company declined comment. The timing of the disaster is difficult for XL in particular, given that it announced fresh 2011 disaster losses of up to $220 million less than a week ago.

Germany's Allianz confirmed that it too was involved as an insurer for the ship and cautioned any resolution would not be quick.

"It usually takes months - and in case of liability claims - probably years of investigation to completely settle large marine claims," the company said in an email.

Analyst Joy Ferneyhough at Espirito Santo bank in London said injury and other liability claims could push the total cost to insurers as high as $1 billion, making it the biggest marine loss ever absorbed by the industry.

"Initial comments from various insurers and underwriters over the weekend suggest that the insurance loss from the Costa Concordia will likely be $500 million - $1 billion," she wrote in a note on Monday.

Without adjusting for inflation, that would exceed the initial losses from the Exxon Valdez disaster in Alaska in 1989.

CLUB LOSSES

Industry experts said it was too early to estimate the final impact on the insurance sector, but warned that the bill would be magnified if fuel leaked from the vessel's tanks, potentially triggering big pollution claims, or if bad weather caused further damage before the ship is pulled upright.

"If it starts leaking two or three thousand tonnes of fuel there could be a substantial pollution liability claim," said Andrew Hamilton, an executive director at insurance broker Willis' London marine adjusting practice. "The weather is going to play an important factor, if it's calm everything can proceed but if there's bad weather the ship will start rubbing up against the rocks which will cause more damage."

Any such environmental damage is usually covered by one of the mutual clubs. Standard Club said it was one of several so-called P&I clubs - specialist marine insurers owned by shipping companies - providing cover to the Costa Concordia.

"As well as supporting our member we are giving the authorities full assistance in their response to the incident," it said in a brief statement.

P&I clubs typically pick up liability claims triggered by shipping disasters. Individual P&I losses exceeding a certain threshold are pooled between the biggest P&I clubs, who in turn buy reinsurance in the event of losses exceeding a set ceiling.

Espirito Santo's Ferneyhough said the Costa shipwreck was not big enough to dent the insurance industry's capital reserves, though another analyst said the loss was likely enough to ruin the year for the marine insurance industry in particular before it has even fully started.

"The overall size of the loss in terms of premium in the marine market is going to be quite considerable, it's going to put the market into loss almost before the year has begun," said Ben Cohen, an analyst at Collins Stewart in London. "Marine losses tend to be very well spread and quite heavily reinsured as well."

Analysts and brokers have said insurers' capital reserves remain robust despite absorbing $100 billion of natural catastrophe losses in 2011, making it the industry's second costliest natural disaster year ever.

($1 = 0.7895 euros)

(Reporting by Myles Neligan in London and Ben Berkowitz in Boston, editing by Sudip Kar-Gupta)

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