Most of the cost of the Baltimore bridge collapse falls on reinsurers – AM Best

The recent collapse of the Francis Scott Key Bridge in Baltimore is expected to impose a significant financial burden on the reinsurers involved, as an analyst indicated that they are poised to cover most of the insurance costs arising from the incident.

Mathilde Jacobsen, senior director of analysis at AM Best, highlighted the critical role of protection and indemnity insurers (P&I clubs) in providing liability cover for marine vessels, including that involved in the bridge collapse.

“Reinsurers will bear most of the insurance costs of the collapse of the Francis Scott Key Bridge in Baltimore,” Jacobsen said in a report. “Liability cover for most marine vessels is provided through protection and indemnity insurers known as P&I clubs.”

Jacobsen specified that P&I Clubs, mostly part of the International Group of P&I Clubs, insure about 90% of the world’s ocean tonnage. This extensive coverage is supported by mutual reinsurance arrangements between member clubs for claims in excess of $10 million.

The group provides total excess of loss reinsurance coverage in the open market of up to $3.1 billion.

Given the scale of the disaster, the financial implications are expected to be significant, potentially exceeding the $100 million threshold that triggers the Excess of Loss (GXL) reinsurance contract.

“Although the total cost of the bridge collapse and related claims will not be clear for some time, it will likely be in the billions of dollars,” Jacobsen said.

She also noted the complexity of the insurance implications, which could span multiple lines of insurance, including property, cargo, liability, trade credit and business interruption contingencies, without including its effects on the growing challenges in reinsurance availability.

The incident involving the container ship, owned by Grace Ocean Pte Ltd and operated by Synergy Marine, happened in the early hours of March 26, according to crisis management firm MTI.

AM Best highlighted the need for P&I clubs to adjust their premium levels. This adjustment is considered necessary for clubs to maintain profitable underwriting results amid the current inflationary economic climate and the possibility of facing a more challenging year.

Additional insights from a previous AM Best report reveal that the International Group of P&I Clubs has successfully renewed its reinsurance program at a reduced cost. However, this renewal does not include widespread exclusions for cyber and pandemic claims from its reinsurers.

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