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Willis: Insurance Pricing for Mining Sector Declines for Second Year Running

Source: Willis

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Posted on 07 Feb 2011

Despite a 30 percent rise in natural catastrophes last year, insurance rates for good quality risks in the operational mining market continued to decline in 2010, for the second year in a row, due to a surge in demand for mining commodities attracting USD 1.8 billion of insurance capacity to the sector.

This is according to the latest Mining Market Review from Willis Group Holdings plc. The global insurance broker released its report at Mining Indaba 2011, the annual conference for natural resource professionals, here.

Speaking at the event, Steve Higginson, Willis Mining Practice Leader in Australia said, “There has been a very noticeable ‘flight to quality’ with underwriters looking to focus their capacity on quality risks operated by groups that can show definitive proof of an embedded enterprise-wide risk management protocol, together with a strong and defined sustainability commitment. For these quality risks, rates in the mining sector have been generally softening over the past two years. However, for risks that cannot illustrate the required degree of quality, the insurance market remains tough with high deductibles and relatively high pricing.”

Higginson said that it is too soon to tell how much of an impact the recent floods in Australia will have on insurance pricing in 2011, but added that along with last year’s mining disasters in Chile and New Zealand, the floods highlight the importance of risk management and insurance to the mining industry. This Willis report includes a chapter on disaster management that asks whether internal crisis committees are effective.

Looking ahead at the main challenges facing the mining industry in 2011, Andrew Wheeler, Willis Mining Practice Leader in the UK, says that sustainability is rising to the top of the risk agenda: “With an ever increasing focus on the environment and increasing resource nationalism, mining activities are not only expected to be financially and technically sound, but must also demonstrate that they have a social license to operate by implementing sustainable development initiatives and supporting the local community.” The report takes an in-depth look at this topic in an article by engineering consultancy Wardell Armstrong.

Other key findings in the report include:

    •    Investor confidence in the mining sector is returning and mergers & acquisitions are increasing, but an Ernst & Young analyst who is interviewed in the report explains that M&A activity may not see the same large scale deals experienced at the top of the mining boom in 2007.
    •    The mining construction sector experienced relatively few losses in 2010.Underwriting capacity continues to enter the market bringing the global market Probable Maximum Loss (PML) capacity to approximately USD 2.8 billion on a ‘best-in class’ risk basis.
    •    Kidnapping of employees is becoming an increasing concern for mining companies. Of the major mining economies in the world, Brazil, Mexico, India, the Philippines and Colombia all featured in 2010’s top 20 kidnap hotspots.
    •    Creeping expropriation, an indirect form of government intervention, is on the rise in emerging markets including Mongolia and Zambia, but also in developed economies like Australia. The report highlights other political risk incidents involving mining operations across the Democratic Republic of Congo (DRC), South Africa, Guinea and Senegal.
    •    The 2010 terrorism insurance market saw more claims activity than in previous years with mining related losses in Colombia, Peru, DRC and Niger.

The Willis Global Mining Practice will be exhibiting at stand 2705 at this week’s Mining Indaba. Conference delegates are encouraged to visit the team and obtain a hard copy of the Mining Market Review. For those not attending the conference, please click here for a PDF of the report.


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