Suez Canal Blockage Could Result In “Large Loss Event”

Fitch Ratings has warned the reinsurance industry faces a “large loss event” from the blockage in the Suez Canal after the colossal Ever Given container ship ran aground over a week ago, closing access to one of the world’s most vital waterways for global trade.

The ratings agency says the ultimate loss figure will depend on a number of factors such as when normal traffic can resume in the canal. The ship, one of the largest ever built, was finally freed Monday.

Incidents involving large container ships can lead to property claims in excess of $US1 billion ($1.3 billion) but these are mostly salvage-related.

Fitch says as the Ever Given should still be able to resume operation after being freed, claims related to hull and cargo insurance, including salvage – which will be borne by the shipowner’s hull insurer – should remain significantly below that figure.

“A large share of those losses will probably be reinsured by a global panel of reinsurers,” Fitch said in a statement. “In isolation, this large loss event should be neutral to their credit profile.”

Fitch says the shipowner’s protection and indemnity club will probably also face claims from the owners of the cargo on the Ever Given and of the other ships that are blocked, for losses related to perishable goods and supply chain disruptions.

They may face claims too from the Suez Canal Authority for loss of revenues caused by the traffic paralysis.

The UK P&I Club, which provided the ship’s Japanese owner with third-party liabilities cover, says all valid claims will be considered by the vessel owner, the UK Club and its legal advisers in due course.

Allianz Global Corporate and Specialty (AGCS), the corporate arm of Allianz, says potential claims scenarios are likely from a number of different areas.

It says any damage caused to the vessel during the incident, such as to the bottom of the vessel or its propeller, for example, will be covered by hull and machinery (H&M) insurance.

H&M insurers are also responsible for the costs of the salvage operation, including the freeing, refloating and towing of the vessel.

“The size of this claim will be dependent on the scale and length of the operation,” AGCS says.

Where third party liabilities are concerned, many scenarios may play out. For example, any damage caused to infrastructure or claims for obstruction are typically covered by one of 13 mutual insurance groups globally which provide marine liability cover to shipowners for approximately 90% of the world’s ocean-going tonnage.

AGCS says liability claims may come from organisations such as the Suez Canal Authority for loss of revenues and also potential damage to the canal, as well as from other vessels that were held up in the area.