Marine accumulations stack up: Willis Re

Examples of marine accumulation risk have manifested multiple times in recent years. Identifying the next one, and getting protected, requires creative thinking. 

Key points:
Baltimore loss to hit retro
Accumulations hard to calculate
Brokers must analyse portfolios

By Robert Stocker, managing director, Global Specialties, Willis Re

What is the worst-possible marine reinsurance loss?

The vast majority of risk carriers in the world with exposure to syndicated marine liability risk have a piece of the claims arising from the 2024 collision of the container vessel Dali with the Francis Scott Key Bridge. It’s universally acknowledged as the largest single marine casualty ever, ahead of the clean-up of the wreck of the Costa Concordia. 

“An abundance of insurance capacity in lower-attaching marine markets means that Baltimore is likely to impact retro pricing only. Still, it prompts reconsideration of marine accumulations, their potential magnitude, and the outwards programmes in place to protect against catastrophic events.”

The lion’s share of the c. $3 billion (and rising) Baltimore bridge loss is expected to fall to retrocessionaires, through the International Group of P&I Club’s reinsurance tower. Insurers cover the first $500 million, reinsurers the next $700 million, and their retrocessionaires everything else after about $1.2 billion. The loss shows how a single vessel can yield a huge liability loss. 

An abundance of insurance capacity in lower-attaching marine markets means that Baltimore is likely to impact retro pricing only. Still, it prompts reconsideration of marine accumulations, their potential magnitude, and the outwards programmes in place to protect against catastrophic events. 

A growing trend

Several marine accumulations have had the potential to become significant losses. Most current and visible is the mass of moribund ships in the Strait of Hormuz. Roughly 500 vessels and their 6,000-or-so crew were laid up there over the summer, according to the UN, and few have passed out since. 

Whilst debates continue over relevant policy language (the word “trapped” has proved contentious), other accumulation losses are more clear-cut. Causation was obvious when the ultra-large container vessel Ever Given broached-to and ran aground in the Suez Canal in 2021, trapping around 400 vessels, for example. 

That year the marine market faced a wave of Covid-related claims. One accumulation risk that did not bring loss was the mass of cruise ships parked in Caribbean waters, where over 60 high-value vessels and their crews formed a huge group of at-risk assets. Fortunately, this idle fleet weathered the hurricane season successfully. 

Drilling rigs parked together in the wake of an oil-price collapse have in the past formed a high-value marine accumulation. It’s another which, luckily, has yet to manifest as a loss. The circumstances may seem unlikely in the prevailing oil-price environment, but unlike a supertanker, such things can turn in a blink.

The global marine market isn’t always lucky. It has, for example, borne the loss of several serious cargo accumulations in recent years. Port accumulations are potentially huge, since the facilities by their very nature attract agglomerations of insured value. 

Explosions in Tianjin in 2015 and the Port of Beirut in 2020 – both caused by fires which led to the violent ignition of improperly stored hazardous chemicals – revealed the potential for loss. Both caused total claims in the region of $3 billion, or about 10% of annual global cargo premium, although in both cases a lot of the loss ended up in the property market. 

A calamity at the Port of Shanghai, the world’s busiest, could be significantly more costly than that. 

Accumulations tough to calculate

Accumulations do not necessarily become losses, as some of these examples show. However, even when the loss manifests, it may be possible to avoid a severe hit to the bottom line. When a stalled fleet is unable to budge, at least a few individual ships are likely to escape, as we’ve seen during the Iran conflict. Other vessels are likely to survive the war intact, even after having been declared constructive total losses. They pass into insurer ownership.  

The spectre of port accumulation is more complex, with potential multiline losses under coverage which cannot be rescinded (unlike, for example, marine hull war). However, cargo has no delay coverage, so can remain stranded indefinitely without a claim. Meanwhile, risk management processes are the subject of constant improvement. 

There’s one thing all of these real and potential marine accumulations have in common, though. They are unrepresented in Realistic Disaster Scenarios. They require insurers and their reinsurance brokers to deftly analyse portfolios, measure potential accumulations (obvious and less likely), and ensure the appropriate protection needs are identified and obtained. 

How would a massive explosion in the refineries of Rotterdam Harbour impact marine insurers, if cargoes and vessels were also lost to the resulting maelstrom?

More familiar for some, what would be the impact of an explosive incendiary event in Monaco Harbor during the Grand Prix? Realistic accumulations should be imagined and assessed, values at risk analysed, and resilience measured. Then, together, we can protect against marine accumulations through an appropriate, innovative reinsurance programme.

Robert Stocker is managing director, Global Specialties, Willis Re. 

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