Willis Sees Premium Rates Softening for Mining Industry in 2010

February 4, 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.

Willis released the report at Mining Indaba 2010, the annual conference for natural resource professionals, being held in Cape Town, South Africa.

Willis described a “calm return to the mining insurance sector” in 2009 “after the unprecedented $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 totaling $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, added: “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.”

Willis identified the “return of rising commodity prices and the resulting increase in exposure, together with the continuing change in climate conditions,” as the main concerns for mining underwriters in 2010.

The report singled out “four major factors on underwriters’ minds” as follows:
— 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.

Other key findings in the report included:
— Total PD/BI capacity in this sector is now estimated at $1.75 billion.
— The mining construction sector produced positive results for insurers in 2009. With few losses affecting the onshore construction insurance market, rates and premiums are softening as new entrants have joined the market to bring global capacity to approximately $2.7 billion.
— Since the start of the credit crunch, Willis says that there have been between $2 billion and $4 billion in Political Risk claims emanating from the mining industry. These have been concentrated in Ukraine and Kazakhstan but have also been seen in Brazil, Bahrain, Indonesia and Bolivia.
— A number of Political Violence claims for mining assets were made in 2009, particularly in South America. This has resulted in reduced capacity and increased premiums that are contrary to the overall Terrorism and Political Violence market, which is softening.

Willis “Mining Market Review 2010” is available in PDF form at: http://www.willis.com/documents/publications/Industries/Mining_and_Metals/Willis_Mining_Market_Review_2010.pdf

Source: Willis Group Holdings – www.willis.com

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