The recent collapse of the Francis Scott Key Bridge in Baltimore is expected to impose significant financial burdens on the reinsurers involved, as an analyst indicates that they are poised to cover most of the insured costs stemming from the incident.
Matilde Jakobsen, senior director of analytics at AM Best, highlighted the critical role of protection and indemnity insurers (P&I clubs) in providing liability coverage for maritime vessels, including the one implicated in the bridge collapse.
“Reinsurers will bear the bulk of the insured cost of the collapse of the Francis Scott Key Bridge in Baltimore,” Jakobsen said in a report. “Liability cover for most shipping vessels is provided through protection and indemnity insurers known as P&I clubs.”
Jakobsen elaborated that the P&I clubs, predominantly part of the International Group of P&I Clubs, insure about 90% of the world’s ocean-going tonnage. This extensive coverage is bolstered by mutual reinsurance agreements among the member clubs for claims surpassing $10 million.
The group secures general excess-of-loss reinsurance cover in the open market, extending to $3.1 billion.
Given the magnitude of the disaster, the financial repercussions are expected to be substantial, potentially surpassing the $100 million threshold that triggers the excess-of-loss (GXL) reinsurance contract.
“While the total cost of the bridge collapse and associated claims will not be clear for some time, it is likely to run into the billions of dollars,” Jakobsen said.
She also noted the complexity of the insurance implications, which could span multiple insurance lines, including property, cargo, liability, trade credit, and contingent business interruption, not including its effects on the increasing challenges in reinsurance availability.
The incident involving the container ship, owned by Grace Ocean Pte Ltd and managed by Synergy Marine, occurred in the early hours of March 26, according to crisis management firm MTI.
AM Best has underscored the need for P&I clubs to adjust their premium levels. This adjustment is deemed necessary for the clubs to sustain breakeven underwriting results amid the current inflationary economic climate and the possibility of facing a more challenging pool year ahead.
Further insights from a previous AM Best report reveal that the International Group of P&I Clubs successfully renewed its reinsurance program at a reduced cost. That said, this renewal did not incorporate widespread exclusions for cyber and pandemic-related claims by its reinsurers.
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