The collision in the North Sea between the MV Solong, a Portuguese-flagged cargo ship, and the MV Stena Immaculate, a tanker transporting jet fuel for the U.S. military, could activate multiple insurance policies, because of the types of vessels and their cargoes, according to Morningstar DBRS.
The incident occurred on February 10, off the eastern English cost, as a result of which both vessels sustained severe damage from the collision and were set ablaze, sparking fears of major environmental damage.
“While the level of estimated losses resulting from this event is manageable for the global marine insurance industry, it raises concerns about the profitability of this business sector,” said Marcos Alvarez, Managing Director, Global Financial Institution Ratings.
“However, we do not expect this event to materially affect the credit profile of marine insurers in 2025.”
According to the operator of the Stena Immaculate, the tanker suffered a ruptured cargo tank containing Jet-A1 fuel when the Solong struck it, which triggered a fire and multiple explosions on board, resulting in fuel being released into the sea.
Most of the crew escaped unharmed. One sailor is missing and presumed dead, sparking fears of significant environmental damage.
The Stena Immaculate was part of the U.S. government’s Tanker Security Program, which contracts commercial vessels to transport fuel for the military worldwide when necessary.
Safely anchored
Marine traffic tracking data indicates that the Stena Immaculate was safely anchored off the coast of Hull when the Solong, on its way to Rotterdam, hit it. Given the nature of the Stena Immaculate’s cargo, the U.S. government has launched an investigation to rule out sabotage.
The rating agency said that the cause of the collision is still unclear, as are the details regarding the available insurance coverages.
“However, this incident is expected to activate multiple insurance policies as a result of its nature and the parties involved. These coverages can be broadly categorised into hull and machinery (H&M) insurance, protection and indemnity insurance (P&I), and marine cargo insurance,” Morningstar DBRS said.
Visual reports indicate significant physical damage to both vessels, suggesting that H&M insurance will likely be triggered. Preliminary footage shows that both ships may be considered a total loss.
The Solong and the Stena Immaculate are relatively small, measuring 140 meters and 183 meters in length, respectively.
Morningstar DBRS estimates their combined insured value to be between $50 mln and $100 mln, which includes the potential costs of salvage operations.
The rating agency anticipates that most financial losses will fall under the P&I insurance policies because of the potential cleaning costs associated with any pollutant spill.
Recovery and cleaning costs
“Depending on the volume of chemicals and fuel released into the ocean, recovery and cleaning costs could significantly exceed claims made under the H&M policy, even if both vessels are declared a total loss. The collision will likely activate the P&I insurance policies for both the Solong and the Stena Immaculate, especially given the possible environmental repercussions of the incident.”
P&I insurance is typically offered by a P&I club, which, in essence, is a mutual insurance association that provides risk pooling, sharing of information, legal representation, and risk mitigation for its members, which include ship owners, ship operators, and charterers.
Members of the International Group of P&I Clubs engage in mutual reinsurance above $10 mln.
Additionally, the Group typically buys general excess loss reinsurance for amounts exceeding $3 bln above an attachment point of $100 mln. This attachment point represents the dollar amount of potential insured losses retained by the Group.
P&I insurance covers nearly all maritime liability risks associated with ship ownership and operation, including third-party liabilities related to damaged cargo during transit, the risk of environmental pollution, and war and political risks (if included in the policy).
Lastly, the owners of any cargo aboard the Solong and the Stena Immaculate will likely file claims under their cargo insurance policies for any losses incurred.
However, Morningstar DBRS expects litigation to arise to ascertain legal responsibility among the involved parties and their insurers, which will activate subrogation clauses.
“If courts determine that any of the ship owners or operators are liable for the accident, cargo insurers may then recover their losses from the liability insurers of the ships involved.”
“We anticipate that the total insured losses resulting from this event will range between $100 mln and $300 mln for all coverages.
“While this level of estimated losses is manageable for the global marine insurance industry, it raises concerns about the profitability of this business sector. This is particularly true considering significant losses incurred from the collision of the cargo container ship Dali with the Francis Scott Key Bridge in Baltimore early last year, as well as the ongoing challenges with maritime traffic around the Red Sea and the Suez Canal.
The rating agency concluded that it does not expect this event to materially affect the credit profile of marine insurers in 2025.
Meanwhile, UK police have arrested the captain of the cargo ship on suspicion of manslaughter.
The owner of the Solong said that contrary to earlier reports, the vessel was not carrying containers of sodium cyanide, which can produce harmful gas when combined with water.
