Key Takeaways
- The collapse of the Francis Scott Key Bridge in Baltimore, on March 26, 2024, has potential to cause the largest marine insurance losses in history; final losses remain highly uncertain at this stage.
- After the Dali, a Singapore-flagged container vessel, collided with the bridge, marine insurers could be called on to cover the cost of rebuilding the bridge and damage to the vessel and cargo, as well as business interruption and other liability claims.
- Nearly all marine insurance globally is provided by the International Group of P&I Clubs (the IG), which has ceded the majority of the risk to the global reinsurance market. A pool of global reinsurers, led by AXA XL, provides the IG with global reinsurance cover up to about $3 billion.
- We anticipate that the protection and indemnity (P&I) clubs, AXA XL, and the global reinsurance sector will be able to manage their losses with no impact on ratings at this stage.
Six people are presumed dead following the tragic collision between the cargo ship and the bridge, which led to the collapse of the bridge. Total marine losses following the accident could prove to be the largest ever recorded, exceeding the close to $2 billion cost of the Costa Concordia disaster in January 2012.
It is too early to make concrete loss predictions, but S&P Global Ratings assumes that losses will include property rebuild costs for the bridge, damage to the vessel and cargo, and business interruption and other liability losses. The U.S. president has publicly stated that the federal government will fund the reconstruction of the bridge, without waiting for private sector coverage. While this may reduce the time it takes to rebuild the bridge, and so reduce the period of potential disruption, it may increase uncertainty regarding the final claims amount for the insurance sector.
Reinsurance Proves Its Worth
Although we expect the P&I sector to be affected, the vast majority of the losses are reinsured. In addition, most of the net amount retained by each of the 12 members of the IG will be shared through the pool. Given the P&I clubs' pooling structure and their comprehensive reinsurance protection via the IG, we anticipate that the losses will be shared among the P&I clubs and the global reinsurance sector. We predict that the IG's cost of reinsurance will most likely increase following the event.
The Singapore-flagged vessel, the Dali, is part of Grace Ocean Pte., which is an insured member of the Britannia P&I Club (A/Negative). Although Britannia provides its liability cover, it will be directly liable for only the first $10 million of the claim. The 12 mutual clubs that are members of the IG will be collectively liable for the next $90 million, through the pooling mechanism. The IG's reinsurance program covers $3 billion in losses per event, above the $100 million covered by the P&I clubs. The program is led by AXA XL (AA-/Stable/--), and provided by large international reinsurers (see chart 1). It is difficult to estimate the cost of any additional liability claims, such as those for business interruption, at this stage. We continue to monitor how the liability claim progresses. If total losses exceed the $3.1 billion covered, we understand further losses will be mutually shared across IG clubs, with levies on the ship owners to pay these claims.
Chart 1
A Major Marine Loss, But Manageable
If the IG's program is triggered, the global reinsurance sector could face a maximum loss from the program of $3 billion. Further losses could arise through business interruption and other liability claims. That said, although we view the collapse of the Francis Scott Key Bridge as a major marine loss, we anticipate that global reinsurers will be able to manage a loss of this magnitude.
In our view, potential coverage is well-spread across the industry. The share will likely vary by reinsurer, depending on risk tolerance. For example, AXA Group has a policy of avoiding concentration of risk on single events or product lines. Therefore, although AXA XL is the pool leader, we expect its share of the program to be moderate. The group's net income for 2023 was over €7 billion, suggesting that it will be able to absorb its share of the potential costs without ratings impact.
We consider the Baltimore bridge collapse to be a manageable earnings event for the reinsurance sector. Although it will likely be one of the largest marine losses in history, there have been similar large losses. The grounding of the Costa Concordia in 2012 shows, in broad terms, how the reinsurance sector has managed net losses of a similar magnitude in the past. Our view that the loss is manageable is further supported by the reinsurance sector's strong underwriting performance in 2023. Favorable pricing suggests that underwriting performance will remain strong in 2024 (see "Short-Tail Lines' Pricing Remains Firm While Reinsurers Keep An Eye On Casualty," published on Feb. 1, 2024).
Related Research
This report does not constitute a rating action.
| Primary Credit Analysts: | Johannes Bender, Frankfurt + 49 693 399 9196; johannes.bender@spglobal.com |
| Mark D Nicholson, London + 44 20 7176 7991; mark.nicholson@spglobal.com | |
| Taos D Fudji, Milan + 390272111276; taos.fudji@spglobal.com | |
| Secondary Contacts: | Taoufik Gharib, New York + 1 (212) 438 7253; taoufik.gharib@spglobal.com |
| Simon Ashworth, London + 44 20 7176 7243; simon.ashworth@spglobal.com | |
| Volker Kudszus, Frankfurt + 49 693 399 9192; volker.kudszus@spglobal.com | |
| Ali Karakuyu, London + 44 20 7176 7301; ali.karakuyu@spglobal.com | |
| WenWen Chen, Hong Kong + 852 2533 3559; wenwen.chen@spglobal.com | |
| Eunice Tan, Singapore +65-6530-6418; eunice.tan@spglobal.com | |
| Sachin Bhojani, London; sachin.bhojani@spglobal.com |
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