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Cruise Ship Disaster Off Italian Coast May Cost Insurers 400 Million Euros

Source: A.M. Best - David Pilla

Posted on 17 Jan 2012

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The weekend grounding of the Carnival Corp. cruise ship Costa Concordia off the coast of Italy with more than 4,000 passengers and crew aboard, may cost insurers more than 400 million euros.

The 290-meter Costa Concordia was on a trip around the Mediterranean when it hit rocks near Giglio Island off the Tuscan coast, ripping a hole in its hull, according to a report by reinsurance broker Guy Carpenter & Co.

Guy Carpenter cited industry sources as saying the Costa Concordia is insured for 405 million euros (US$513 million). The broker cited reports that said XL Group leads the insurance cover while RSA Insurance and Generali also provided coverage.

"For potential injury claims, Standard Club said it was one of several P&I clubs providing cover for the Costa Concordia," said Guy Carpenter.

London-based Standard Club confirmed that it is the lead protection & indemnity insurer for the stricken ship, which ran aground of Giglio Island on Jan. 13. A Standard Club spokesman said on Jan. 16 that the club "has very limited information available at the moment."

An XL Group spokesperson said the company has no comment on the incident at this time.

Gabriele Handrick, a spokeswoman with Hannover Re, said "I can confirm that we expect a major loss from the cruise ship disaster. However, it is too early to give a more exact figure or to specify the amount of the exposure regarding the class of business."

Handrick added that Hannover Re defines a major loss as "damage which exceeds 10 million euros in gross terms."

The lines of coverage involved are hull and machinery (losses from the ship itself) and protection and indemnity (liability claims from the passengers and the crew as well as the costs for the removal of wreck), said Handrick.

Liugi Foschi, chairman and chief executive of Genoa-based Carnival affiliate Costa Crociere, said in a conference call that about 1,100 employees are working "around the clock" to secure the crippled vessel and account for all of the more than 4,000 passengers.

He said so far there has been no environmental impact from the accident. The ship was carrying 2,300 tons of fuel when it hit rocks off Giglio Island, but so far there is no evidence of fuel leakage, he added.

Carnival said its insurance coverage for the vessel included a $30 million deductible for damage to the vessel, plus a $10 million deductible for third-party personal injury liability.

In a statement posted with the London Stock Exchange, Carnival said a damage assessment review is being conducted on the vessel to determine how long it will be out of service. Carnival said that for the fiscal year ending in November 2012, the impact on earnings from loss of the vessel is expected to be between $85 million and $95 million.

Carnival said it self-insures for loss of the use of the vessel.

"In addition, the company anticipates other costs to the business that are not possible to determine at this time," Carnival said.
Foschi said an Italian prosecutor is leading the investigation of the incident, and currently has possession of the "black box" recorder containing navigational information. He added the vessel can only be accessed by Costa employees with permission from the local authorities.

"We believe there has been a human error here, as the captain did not follow the authorized route," said Foschi.

Among the 3,200 passengers and about 1,000 crew members aboard the ship, six died. Foschi said he could not confirm how many might still be missing, citing investigations by local authorities.