Suez Canal losses manageable for insurers despite uncertainty around long-tail liability: Report

THE losses that came with the blockage of the Ever Given container ship lodged along the Suez Canal is largely manageable for most insurers and reinsurers in spite of uncertainties around long-tail liability, said a Moody's Investors Service sector report on Thursday.

The report said that the resumption of traffic after the ship was dislodged is a positive for insurers and reinsurers as it lowers the risk of significant and broad losses beyond those that directly result from the incident.

Additionally, the analyst team added that at the current stage, losses related to claims on delayed ships' own insurance policies and manufacturers' business interruption policies are expected to be relatively small.

They attribute this to two reasons - much of the liability and business interruption coverage applicable in this case would require the loss to be physical damage and, business interruption coverage has a deductible period where claims are only paid if a business is suspended for more than a certain period.

However, liability and business interruption coverage claims are likely to be limited to ships with perishable goods, which are affected by the damages resulting from the delays.

Yet, the report highlighted that the Suez Canal accident is credit negative for reinsurers because they continue to face uncertainty on exposure from this event. This includes the large number of cargo and liability claims that could be triggered against direct insurers and reinsurers.

It was also noted that the event could give rise to liability claims via the UK P&I Club, which has provided protection and indemnity (P&I) insurance coverage on the Ever Given container ship. Since a large number of insurers and reinsurers participate in the group's US$3 billion excess of loss reinsurance program, there could arise third-party liability claims.

This insurance includes certain third-party liabilities such as those associated with damage of port facilities and other ships' cargoes, which the report said could be a meaningful source of claims for insurers and reinsurers. But it underlined that the extent of possible claims and outcomes arising from the above remains uncertain.

Specific to Shoei Kisen Kaisha Ltd, the Japanese company that owns Ever Given, this accident will have limited financial and credit impact on rated Japanese property and casualty (P&C) insurers because of the lack of significant damage to the ship, said the report.