Re/insurance loss from Hanjin could be $1.8bn

The re/insurance sector could find itself with an eventual bill of as much as $1.8bn — $900m of it in marine insurance — as a result of the collapse of Hanjin Shipping, according to analysts at Credit Suisse. reports that Credit Suisse’s insurance equity analysts think that the re/insurance sector will book its losses either this quarter or next. The timing would be dependent on when they write to book their estimated losses as a result of business interruption insurance claims.

“Though very little information is available for total losses related to the event, using a conservative estimate of business interruption losses, we estimate that total insured losses have the potential to be almost as big as half the size of the Tianjin losses from a year ago of $4.0bn”. The Tianjin explosion and subsequent fire was the largest man-made marine insurance loss ever. It should also be noted that some think the ultimate losses from Tianjin will be as much as 50% higher than the Credit Suisse estimate.

Credit Suisse said that, if one assumed 10% of the $14bn of cargo stranded at sea was (a) unrecoverable and (b) insured, that would generate an insured loss of $1.4bn that could be covered by marine cargo insurance.

Credit Suisse notes that most basic “All Risks” coverage includes an “Insolvency of Carrier exclusion”. This excludes damages due to insolvency or financial default of the owners, charterers, or operators of the vessel. This clause could prevent many insurers being liable for damages associated with the Hanjin bankruptcy.

But Credit Suisse added that many marine/cargo insurance contracts are written on a case-by-case basis “so it will be difficult to estimate the total insured losses until more companies affected report insured losses in the next few months”.

Credit Suisse estimated that about 60% of insurance contracts would have an insolvency of carrier exclusion, resulting in a $900m marine insurance insured loss..

Half of the $4bn of losses from the Tianjin explosion were in the marine insurance industry. The remaining half were largely business interruption losses. Credit Suisse expects the same for Hanjin, which would bring the total insured loss estimate for the event to $1.8bn – half in marine and most of the rest in business interruption.

Credit Suisse noted that XL Catlin took 2.2% of the losses from the Tianjin port explosion, so could be looking at a $40m loss from Hanjin. Chubb, in turn, could be facing a loss of $50m if the total loss is around $2bn.