Hannover Re stated last week that this would be a ‘major loss’ for the company with the hull loss alone likely to reach around €30m for the company's net account.

“Liability claims are difficult to assess at this point in time. The assumption is that a market loss running into triple-digit millions of euros could result. The total loss for Hannover Re—as a leading marine reinsurer—could therefore be in the mid double-digit million euro range,” added the reinsurer this week.

Munich Re said that the loss is likely to be within the ‘mid double-digit million euro range’, and also stressed the difficulty of working out the total potential loss at this stage because of the uncertainty surrounding liability claims in particular.

“Besides costs for the vessel under hull insurance, further losses may arise due to liability claims from passengers, recovery of the wreck, and possibly from environmental liability claims. Therefore, it is not possible at this stage to put a final figure on the exact loss amount,” stated the Munich-based group.

The rapid involvement of US law firms will be one of the reasons why the reinsurers are unwilling to commit to firmer figures at this stage.

New York-based law firm Proner & Proner announced earlier this week that it has joined forces with the Italian consumer association Codacons and fellow US law firm Napoli Bern Ripka Shkolnik to file a class-action lawsuit against Costa Cruise Lines, the company that operates the Costa Concordia.

Mitchell Proner said that he and his colleagues would seek ‘at least’ $160,000 for each passenger who was aboard the ship at the time of the disaster.

“Those who were severely injured in the shipwreck, as well as the families of those who lost loved ones, could collect hundreds of thousands of dollars on top of that amount,” stated the law firm.

The firm stated that Costa Cruise Lines, which is owned by Miami-based Carnival Cruise Lines, has blamed the accident on the negligent actions of Captain Francesco Schettino.

The law firm described this as ‘an attempt to minimise its liability’.

Proner & Proner has initiated legal action against Mr Schettino in the Italian civil courts but noted that the captain is adamant that blame for the tragedy ‘does not end there’.

The law firm said that in typical cruise ship accident cases, passengers are bound by the legal terms laid forth on their tickets.

It stated that most cruise ship tickets establish a much shorter time limit within which passengers may file a claim against the cruise ship company than normally set by United States state and federal laws.

In the case of Costa Concordia victims, litigation resulting from the accident would have to occur in the courts of Italy, stated the law firm.

Proner & Proner is, however, confident that the US courts will accept the case in an effort to protect the rights of the 120 American citizens who were onboard the vessel at the time of the accident.

After publication of the statement about the class action Mr Proner is reported as stating that the Costa Concordia had a history of cruising recklessly close to other islands to impress passengers.

Mr Proner is reported as saying that it would file a class-action suit in Miami on Wednesday this week, adding that the ship owner would be a main target of the lawsuit.

Mr Proner is alleged to have said that the firm is exploring numerous defendants and that Costa Cruise Lines is certainly one of those.

He is reported to have said that while the company may be trying to indicate that the incident is the fault of the captain, the law firm is aware of previous incidents when the ship sailed close to the islands along the Italian coast as publicity stunts.

Meanwhile, marine expert Dieter Berg of Munich Re described the tragedy as ‘by far’ the largest marine hull insurance loss he had ever experienced. “Even the Exxon Valdez is unlikely to come close. The alarm bells should now be ringing among the hull insurers,” he stated on the reinsurers’ website.

Mr Berg said that he was shocked at how the risks of such vessels had apparently been underestimated by insurers.

“Many insurers do not get their sums right and underestimate the potential of a major loss. It is simply mind-boggling when you see how the values of vessels have been developing. Yet, surprisingly, in my view, this niche segment does not even appear on the radar of the board in many companies,” he stated.

Asked whether shipping companies had learned nothing from previous loss occurrences, Mr Berg said that times are changing fast in this market which makes it more difficult to track the potential exposures.

“The world fleet is now younger. Many shipowners took advantage of the last crisis to scrap old vessels. As a result, there are fewer losses but those that do occur are more costly. This is due to the higher values and spiraling repair costs, including steel and labour,” he explained.

As to the wider implications for the marine insurance market, Mr Berg said that insurers and reinsurers will be left to ‘foot a massive bill’ which he assumes will represent a total loss.

Then he said the insurers will have to question whether rates are adequate. “The ship's hull insurers have to ask themselves seriously whether potential major losses are adequately priced.”

Mr Berg was not prepared to predict a rapid tightening of capacity and an increase in rates for such marine risks. But he does believe that the market will react.

“The alarm bells from Italy will be followed by critical analyses by managers. Smaller players will recognise that hull insurance for ships is not a profitable venture for them,” he said.

“I cannot say whether there will be an upsurge in premiums. In this kind of hull business, you can get a lot wrong with relatively little capital. And you can create a lot of pressure in the market with relatively little capacity. And let's not forget that, at the end of the day, shipowners are also very shrewd buyers of insurance,” added Mr Berg.

Credit rating agency Moody’s issued a note that said the insurance and reinsurance markets are bracing for claims that could ultimately reach $1bn.

It noted that following the very heavy loss burden for insurers and reinsurers from an industry-estimated $108bn of claims from worldwide catastrophic events in 2011, the Concordia disaster marks the first major insured loss of 2012.

It said that the loss would result in a ‘drag’ on first-quarter 2012 earnings for affected firms which it described as a ‘moderate credit negative’.

Moody’s stated that insured losses from the cruise ship accident are likely to arise from four factors: marine hull insurance, which covers damage to the vessel and whose coverage is an industry-estimated €405m; liability insurance claims from passengers; costs associated with recovery of the wreck; and possible environmental liability claims related to any fuel spillage that occurs.

Moody’s noted that the marine insurance market is ‘widely syndicated’ and so the losses will be spread broadly among primary insurers that write marine business, syndicates that operate at Lloyd’s of London, and global reinsurers.

It added, however, that the claims burden could fall ‘more heavily’ on reinsurers because primary insurers and Lloyd’s syndicates generally carry significant reinsurance coverage on their marine hull and liability risks with relatively low deductibles.

But, while the tragedy may not directly hit the global insurance and reinsurance market’s security and balance sheets, the loss will make the equity markets even more nervous and damage insurer flexibility, suggested Moody’s.

“We expect the Costa Concordia losses to be minor in the context of both core earnings power and capital for insurance and reinsurance companies, but 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,” stated Moody’s. “Price-to-book valuations in the reinsurance sector remain well below book value for most firms, a situation that has persisted for more than three years. 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,” added the rating agency.

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