The recent images of the Ever Given container ship stuck in the banks of the Suez canal reverberated around the globe. Now freed, the canal has begun to slowly transition back to normal as the logjam of piled-up ships starts to ease, but the financial repercussions are just beginning as reinsurers face massive hits from the delay.
The Ever Given blockage, coupled with the massive impact of the 2020 (and continuing) COVID outbreak, has made some tough months for the reinsurance industry even worse, with losses that will continue to deliver consequential hits to their reserves.
Bringing an Essential Center of Global Trade to a Standstill
The global traffic of goods usually hums quietly in the background unseen and unnoticed as ships move our mobile phones, sofas and tennis rackets from place to place, until… they don’t for some reason. Such was the case with the Ever Given, wedged diagonally aground and blocking all traffic through the Suez canal for nearly a week. Fortunately, expert teams of engineers from around the world descended on the canal to help free the stranded ship, but not before its blockage brought 12% of all global shipping to a standstill.
As trade resumes, there will be two lingering consequences, according to Fitch ratings: global reinsurers’ earnings should expect a significant reduction in first-half 2021 and prices for marine reinsurance will rise, with the former potential losses reaching into the hundreds of millions of euros. Fortunately, the ship was simply stuck and not lost or scuttled, averting the implications of longer delays and salvage expenses.
That said, there may be financial ripples from the owners of the other ships that were blocked by the Ever Given for perishable goods lost and supply chains interrupted, or by the Suez Canal Authority itself.
Long-Tail Covid Consequences for Reinsurers
The Ever Given crisis comes on the heels of a dismal Covid-affected 2020 for reinsurers. Reinsurers lost out significantly financially due to Covid-related claims, though the damage was tempered by substantial price increases in premiums.
Reinsurers also faced losses from outsized winter storms in the United States, and catastrophic flooding in Australia. SwissRe estimates that natural catastrophes alone were the cause of over $190b in losses in 2020. This represented a nearly 35% increase over 2019, and the fifth-costliest year since 1970.
Reinsurers are keeping a wary eye on natural disasters for the remainder of 2021, since according to Swiss Re group chief Jerome Haegeli “2020 will be remembered for the global health and economic crisis triggered by the COVID-19 pandemic. But while COVID-19 was a stress test for society and the economy, it has an expiry date – climate change does not.” So-called “future peak loss scenarios” continue to be on the horizon and will need to be monitored by reinsurers.
On the bright side for reinsurers, due to the reduced mobility and economic activity of pandemic lockdowns across the globe, the number of man-made events fell to one of its lowest levels ever.
Reinsurance has never been a business for the faint of heart. The events of 2020 and the first quarter of 2021 have underscored the need for reinsurance and the essential service the industry provides to protect against human and natural catastrophes.
