US-based Carnival received $269m of insurance recoverables during the three months to the end of February. That sum follows on from the $381m it was handed by insurers in the previous three months.
These funds all relate to the protection and indemnity (P&I) side of Carnival’s insurance coverage. The Costa Concordia casualty has substantially eaten into the International Group’s excess of loss reinsurance programme.
As it stands, the P&I loss has reached well over $1bn, with much of the payment related to the salvage of the stricken cruise liner. One of the main reasons the salvage costs are so high is because the Italian authorities are adamant the vessel should be removed in one whole piece as opposed to cut up and removed in separate parts. This is to minimise the potential for pollution and the impact on the environment.
However, the plan has raised eyebrows, especially from the marine insurance market who continue to foot the bill for this revolutionary exercise.
Many of the world’s leading insurers and reinsurers were on the International Group reinsurance contact, and as such continue to face claims from the ongoing salvage operation.
The rusting wreck, which is resting within the bay of Giglio, is scheduled to be removed in June after it was pulled upright in September last year. Dutch Royal Boskalis Westminster, the Netherlands-based salvage firm, was handed the €21m contract to remove the vessel last year. Once it has been removed, the vessel will be scrapped.
Aside from hitting the 2011/12 P&I policy year, the casualty continues to impact the market in other forms. As reported in Reactions earlier this year, the International Group was once again forced to overhaul its excess of loss reinsurance contract to offset the price hikes being demanded by the programme’s underwriters.
At the bottom end, the individual club retention will remain as before at $9m. But further up the programme, changes have been made to reflect the commercial market's pricing demands over their concerns regarding the increased cost of major casualties, removal of wreck and Special Compensation of P&I Clubs (Scopic) exposure.
the commercial market's attachment point now stands at $80m, another increase of $10m following on from an identical rise last year, with the additional $10m retained within the pool reinsured by the International Group's captive vehicle, called Hydra, for $50m excess of $30m.
The Hydra co-insurance share in the first layer of the XoL contract - $500m excess of $80m - will remain at 30%.
For the upcoming policy year, the XoL contract will retain its three layer pool structure - the lower layer of $9m to $45m, an upper pool layer from $45m to $60m of which the claiming club has a retention of 10%, and a top layer of $60m to $80m with another claiming club retention of 5%.
One other change to the XoL contract for the 2014/15 policy year has seen the International Group place 5% of the programme in two layers from $100m to $1.1bn on a three year fixed placement basis.