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Coal shipping industry facing insurance policy problems

18 November 2021

The growing influence of Environmental, Social, and Corporate Governance (ESG) is affecting the world-wide shipping of coal with a predicted impact on the availability of insurance cover.

Major reinsurers had reportedly started pulling back from providing bespoke cover for coal projects as part of efforts to meet global climate change commitments and now Swiss Re, (Swiss Reinsurance Company Ltd) has told Reuters that from 2023 it would no longer cover the transport of thermal coal via reinsurance treaties, where it covers a portfolio of insurers' policies.

The company exited the direct insurance of coal cargoes in 2018 and Patrizia Kern-Ferretti, head of marine at Swiss Re Corporate Solutions said: "There is much more pressure on the insurance companies in terms of ESG. I hear from brokers they are having difficulty placing coal policies in the insurance market. More and more companies are applying direct guidelines."

The move away from fossil fuels could drive up the cost of finance and insurance for some shipping firms in the dry bulk sector, which carries nearly half of global seaborne cargo volumes.

The six firms that spoke to Reuters about their coal concerns collectively own, finance, insure or reinsure more than Euros 1.18 billion ($1 billion) of capital in the dry bulk industry, based on the estimated value of shipping assets.

Analysts believe leading shipping financiers currently provide close to Euros 256 billion ($290 billion) of lending to the industry annually, with capital requirements for the dry bulk segment accounting for about Euros 14 billion ($16 billion).

Six European firms collectively representing over 5% of the estimated annual Euros 14 billion ($16 billion) capital financing requirements of the dry bulk industry told Reuters they were either reducing their exposure to vessels that transport coal or were considering doing so.

Large vessels stretching up to 270 metres (885 ft) long and able to carry hundreds of thousands of tonnes of cargo, are the cheapest way to transport coal which accounts for around 30% of cargo volumes. London-based specialist asset manager Marine Capital, which owns and operates shipping assets on behalf of institutional investors, said it anticipated that funders would not support investments in the largest bulk carriers that carry coal.

Significantly, Antwerp has turned its back on coal while the former Hunterston coal import terminal in Scotland is shifting to servicing offshore wind, dry docking for ships, aquaculture and the recycling of energy.

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