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Willis: Mining Rates Likely to Soften in 2010

Source: Willis

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Posted on 04 Feb 2010

Rates for Mining Property Damage & Business Interruption (PD/BI) insurance are likely to soften in 2010, but could harden again should this volatile sector experience a catastrophic loss, according to the latest Mining Market Review from Willis Group Holdings. The global insurance broker released its report at Mining Indaba 2010, the annual conference for natural resource professionals in Capetown, South Africa.

Last year saw calm return to the mining insurance sector after the unprecedented USD 3.5 billion in property claims - mainly the result of the commodity cycle boom - sent the market reeling in 2008. Steve Higginson, Willis Mining Co-Practice Leader, observed, “Last year was below average from a loss perspective, with claims totalling USD 400 million. Although the perils are no less significant, this has afforded a moment for the mining insurance market to take stock.”

Andrew Wheeler, Willis Mining Co-Practice Leader, said, “While we expect to see the emergence of a buyers’ market for mining in 2010, the huge losses of 2008 remain fresh in underwriters’ minds. Should we sustain a significant natural catastrophe event or considerable machinery, property and business interruption losses, the rates in the Property market may well spike again.”

The return of rising commodity prices and the resulting increase in exposure, together with the continuing change in climate conditions, are the main concerns for mining underwriters in 2010. Four major factors on underwriters’ minds are:

* De-bottlenecking - Insurers are putting pressure on clients to implement initiatives that change certain aspects of the production process to reduce delays, gain efficiencies, and increase throughput in the mining process, including limiting Supplier of a Supplier exposure.

* Natural catastrophe capacity - After the market shock of 2008, capacity is returning to the operational mining business, with at least three new markets writing non-proportional business. However, the level of capacity supply going into 2010 remains below the level of demand in natural catastrophe exposed areas. Capacity remains tight for Earthquake and Rain Event and Flood insurance, especially for open-cut operations.

* Commodity prices -Rising prices have resulted in increased exposure for underwriters. Willis predicts that price caps will be back in vogue in 2010 to provide underwriters with more certainty. If commodity prices return to 2008 levels, though, large placements may find capacity once again restricted.

* Market security - Many buyers continue to syndicate their risks to a wider range of reinsurers rather than to a single large capacity provider.


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