Investors unfazed by Chubb's Baltimore bridge link

Chubb Ltd. shares have seen little movement this week despite a report that it is likely the lead provider of insurance on a major bridge that unexpectedly collapsed in the early morning hours of March 26.

The 1.6-mile-long Francis Scott Key Bridge fell into the water after being struck by a container ship heading out of the Port of Baltimore whose crew had lost control of the vessel. A mayday call from ship's crew enabled officials to stop most traffic from traversing the bridge, but multiple fatalities involving road workers who were on the bridge at the time of collision were reported.

As of the close of trading Thursday, Chubb shares were trading up by a little over 1 percentage point for the week.

CreditSights analyst Connor Burnham said in an interview that although Chubb may be the lead underwriter on the bridge, it will likely see a minimal impact from the incident.

"We're thinking that as time goes on, any claims paid by Chubb are going to be subrogated," Burnham said. "They're going to be going after the insurer for the ship to try and recoup any of those claims that they end up paying out on the bridge."

Market reaction

The bridge collapse is expected to have the most significant implications for marine insurers and reinsurers, as much of the financial fallout is expected to fall on them.

Estimates for the loss associated with the bridge's collapse are projected to fall somewhere between $2 billion and $4 billion, though it could take some time for the complex tangle of claims and liability to work its way through the system.

Burnham thinks that the market also agrees with the view that there is a high likelihood for claims subrogation, and that is why shares are fairly flat and there has not been an "overreaction" from investors.

When asked to answer questions about whether Chubb provides coverage for the destroyed bridge, first reported by Insurance Insider, the company said in an email that "as a matter of policy, we do not comment on individual claims."

Record breaker

Analysts and experts widely believe that the bridge's destruction will result in the largest marine insurance claim in history with the International Group of Protection and Indemnity Club's reinsurance pool picking up the majority of the tab.

AXA XL is the lead underwriter on the reinsurance policy and Aon PLC covers the bridges and tunnels property placement for the state of Maryland, according to Insurance Information Institute spokesperson Loretta Worters.

In a note, TD Cowen analyst Andrew Kligerman said insured losses are likely to involve liability claims from business interruption because of the port closure, debris removal and wrongful death.

"We expect each of these buckets to have the potential to run into the hundreds of millions of insured losses," Kligerman said.

In a note, Fitch Ratings said the incident is expected to have a "limited impact" on individual reinsurer earnings, which would not result in changes in ratings for global reinsurers.

"A $2 billion to $4 billion industry loss is anticipated to be spread widely across carriers," Fitch said. "Syndication of the reinsurance program leads to limited participation in the gross losses for individual reinsurers."

Supply chain

The bridge's collapse is the "latest challenge for northeast US supply chains," Chris Rogers, head of supply chain research for S&P Global Market Intelligence, said in an email, noting that bridge reconstruction and resulting delays of cargo are likely to be significant.

"The port handled around 3% of all US East and Gulf imports and 10% of US Northeast imports of containerized freight in the 12 months to Jan. 31, 2024," Rogers said.

Port delays may especially impact the transportation of materials from the wood, construction machinery, and steel and aluminum sectors, Rogers added.

Burnham said insurers and reinsurers will likely use the bridge incident as evidence to use heightened premium rates.

"Over the medium term, this could be a driver of price increases in the marine market," Burnham said. "We could see some rate hardening as a result."