Cruise ship loss will hit insurers’ capital growth - Moody's

Losses from the Costa Concordia cruise ship disaster will impede capital growth for affected insurers, according to rating agency Moody’s.

In a weekly credit report, the rating agency said that it expects the Costa Concordia losses to be minor in the context of core earnings power and capital, but that it will nonetheless be a drag on first-quarter profits.

Moody’s said the claims burden is likely to fall more heavily on reinsurers than primary forms or Lloyd’s syndicates because they tend to have significant reinsurance coverage on their marine hull and liability risks, which have low retention levels.

“The earnings drag from this loss event will impede capital growth for affected firms and contribute to the perception among investors that the reinsurance sector cannot earn its cost of capital,” Moody’s said in the report.

It added that insurers share price valuations remain well below book value for most firms. “We continue to believe that the low equity valuations characteristic of the reinsurance sector reduce financial flexibility and increase risk for policyholders and other creditors,” the report said.

The Costa Concordia ran aground off the coast of the Italian island of Giglio on 13 January. The disaster killed 13 passengers and a further 20 are still missing.

Insured losses will come from four areas: the hull (believed to be valued at $513m (£330m)), liability claims from passengers, wreckage recovery costs and environmental liability from fuel spillage.

Some estimates put potential total losses at $1bn. Both Hannover Re and Munich Re have put out vague estimates of their losses.