Mining premium may be lost if Queensland losses are disputed

The event, combined with other recent major losses to the mining industry, has not caused any sudden reduction of capacity for mining risks. But the broker said that there is a threat that the events could cause general insurers that write the line to move their capital elsewhere. Adjusting losses from the Australian floods will be a big challenging said Andrew Chester, who is also head of Bowring Marsh for UK and Ireland, at a quarterly briefing on insurance market trends. “The main query (will be) how many events have taken place. A lot of policies include 72 hours clauses,” he said. Experts have said this week that they expect the Australian floods to amount to at least two events. This could rise to three, with uncertainty over the number of losses given the time between events in Rockhampton, Toowoomba and Brisbane.hideMultiple events would mean that more of the losses will be incurred by primary insurers, rather then reinsurers, as they will be forced to incur multiple retentions. Buyers of primary insurance would be in the same boat with their insurers, thus increasing industry’s exposure, the broker explained. Recent estimates from catastrophe modeling firm AIR Worldwide place the damage bill from the floods for insurers and reinsurers at between $3bn and $6bn. It estimates the damage caused by the Queensland floods to be around $6bn, with damage from the Brisbane area contributing $4bn and the damage caused by floods further north in late 2010 adding another $2bn. Mr Chester said it was too early to attribute losses for the mining sector but did say that capacity for that market remains plentiful. Core markets (Reinsurance presumably?) appear unconcerned by any recent losses, he said, but the position of the general insurers who participate in the market is less clear. “For the core markets that have and continue to be prominent in the market, we are not hearing that Queensland event is changing their mind. Clearly a lot of capacity is required to get these programs done which deals with a lot of general insurance. It is quite possible they will have a look at the amount of income they get from mining part of their portfolio and look at their losses and make their own decisions,” he explained. It is crucial for the insurance industry to prove its value to mining customers because, as their companies grow in size, increasingly they have the option of full self-insurance, he continued. He noted that property damage business interruption cover for one of the world’s largest mining companies was lost to the reinsurance market last year in this manner. The company chose not to reinsure its captive. “Many mining customers have very large balance sheets indeed and are starting to look like the oil companies now, that decide not to buy protection for their captive. We do not want mining companies, from a broker point of view, to go the same way so it is vital that they can reflect in time that the policy responded well and that good links with adjusters and carriers are made and satisfactory settlement is achieved,” he said. In other markets capacity remains plentiful with soft market conditions expected to persist for the next six months, said Nick Bacon, CEO of Bowring Marsh. The exception to this is US-based casualty cover, he revealed. Non US-based casualty rates are softening by as much as 10% and the trend is expected to continue for the first half of 2011, he said. Two or three year deals are returning to the market, he added, which were last seen before the financial crisis in 2008. There is plenty of capacity for international, or non US-based, property business, continued Mr Bacon. He expects rates to be flat or down slightly for business coming into the London market over the next six months. For North American property business there is vigorous competition both within London and between it and the domestic US market, noted Mr Bacon. Without any significant catastrophe loss he expects the trend of slight decreases in rates to continue going forward. US based casualty, which is very important for the London market, bucks the soft market conditions, explained the broker, with renewals flat to moderately increasing. Interestingly, as rates increase new insurers are joining the market, which may act to suppress rates going forward, he continued. But Bowring Marsh expects the current rating environment to persist for the next six months. Terrorism rates are down 10%, a continuation of the recent market trend, he concluded.

Mining premium may be lost if Queensland losses are disputed

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