Metals & mining
Property damage and business interruption placements Metals and mining clients faced increasing premium rates, tightening policy terms, and reduced capacity availability during 2020. However, within this macro-trend, there are significant variances, including country/regional and large/medium company micro-trends, which we analyse in this section.
Figure 24 compares the average adjusted rate change of the metals and mining sector to an all-industry sector benchmark. The data is from over 120 companies, ranging from the world’s largest miners through to specialist niche operations, so it offers a good macro-trend view for comparison purposes. Our data shows broadly consistent levels of rate increases through 2020, and at 1 January 2021, perhaps Q3 rate velocity peaked, but there is currently no material slowing of trajectory.
Fig 24: Metals & mining rate evolution
Source: Aon GBC
Fig 25: Rate change range for loss free and loss active accounts
2020 rate trends
In line with other industrial sectors requiring USD 1 billion-plus limits, such as high-tech, pulp and paper, pharma, both metals and mining placements faced a competition dynamic where primary layers were often over-subscribed and middle and excess layers struggled to make it past 100%. This translated into situations where clients who were not prepared to pay the terms quoted chose to retain blends of primary risk and middle/excess layer risk. Buyers rationalised they could retain the one in fifty-year event level for a year or two while premiums were at this point in the cycle. US and Lat Am miners retained greater shares of primary layers compared to their peers in 2020, which is a reflection of tightening markets in-country as well as the specialist global carriers. Nearly every client sought a larger range of retention option pricing to consider before selecting the optimum risk-reward balance to achieve risk financing objectives.
Miners in Australia, Africa, and Canada experienced specific challenges depending on their mining profiles and capacity requirements, those with captive options had the most leverage. Those looking to switch lead underwriter and/or broker during the year secured limited benefit, and when handled poorly, antagonised carriers who became less flexible.
Fig 26: Maximum per risk capacity at 1 January 2021
- Close to 50% of clients with existing captive insurers retained more risk during 2019 and 2020, with the trend continuing at 1 January 2021. There has been a rise in new captive start-ups, particularly from the Middle East aluminium sector.
- Total per risk capacity reduced an additional 10% to 15% for clients with active loss records or poor-risk profiles because carriers generally offered smaller lines to this client segment to improve the overall client risk quality of their portfolio. Self-insured retention increases were also imposed on the majority of these placements.
- Gold miners saw BI values increase, and carriers looked to manage exposure by applying maximum price caps and/or six-month end of policy BI adjustment clauses. Fixed monetary deductibles/retentions became less valuable to carriers than day BI deductibles because they could be eroded more quickly.
Environmental, social, and governance
Most miners have ESG rating scores, and special teams working on implementing ESG plans. Risk professionals are accustomed to sharing annual updates of progress with the (re)insurance partners.
During 2020 carriers were much more sceptical and questioning of companies with poor ESG records. The German market, Allianz, Hannover Re, and Munich Re took the toughest line, closely followed by the Swiss and French markets. London has, to date, been more flexible, but the Lloyd’s statement in December 2020 seems to have set the course for a more European approach. Capacity for coal miners continues to shrink, although many carriers were attempting to offer a transition plan approach. However, thermal coal buyers are increasingly not able to purchase the policy limits they require and have had to retain significant risk compared to other mining types. Aon’s experience of client and underwriter discussions around ESG has been mixed. Some examples of transition absent underwriting has not been well received by long-term customers of the mining insurance sector. All stakeholders’ ambition to support climate change reduction initiatives means discussions are improving, but the number of solutions isn’t increasing, partly due to the hard market. At Aon, increased investment in ESG capabilities and services means improved managing and understanding of the issues and market. However, many clients are frustrated with the absence of real alternatives to the traditional market.
"Some examples of transition absent underwriting has not been well received by long-term customers of the mining insurance sector."
Aon’s and carrier claims data indicates claims activity in the mining sector was below average, with none of the common USD 250 million-plus claims wiping out large parts of the USD 1 billion premium pool for the sector. We, therefore, anticipate carriers who have specialist mining teams will deliver good results for 2020 with combined ratios between 50% to 70%. Our data for the metals sector indicates loss activity, adjusted for increased retentions, enjoyed the best year in two decades. Claims loss ratios of between 30% to 50% are common, and we heard of one carrier having only three claims notified during the calendar year. This would normally be a sign of increased competition, and this will arrive, but some carriers faced 200% to 300% loss ratios from the same sectors in 2016-2018, so remain cautious. Risk selection and individual underwriter experience remain major determinants of profitability. Claims from COVID-19 in the metals and mining sector have been very limited compared to other industries because mines and plants have continued to operate. There have been a small number of claims submitted under business interruption (BI) and extra expense extensions, where policy language was broad enough. Yet, even here, many have been declined because there was no physical loss trigger.
We anticipate that the metals and mining sector could be one of the first to show signs of increased competition during 2021. This is because terms have risen faster and higher than the general property sector (see fig 24), and based on past cycles, competition can pick up when pricing reaches these levels and carriers have new growth targets. There is sufficient capacity for most placements, at underwriters’ terms. If there are no major (USD 250m-plus) losses, we expect there to be examples of carriers offering increased lines on their favourite accounts early in 2021. However, we anticipate much more reluctance to move on rate, the result will be the 10% most expensive carriers are likely to be dropped from placements.
This and other trends will be client-specific and matrixed with country and regional factors. We would recommend readers to check the two general property sections for county trend insights because they can offer additional signposting to the metal and mining sectors' future direction.
"There is sufficient capacity for most placements, at underwriters’ terms. If there are no major (USD 250m-plus) losses, we expect there to be examples of carriers offering increased lines on their favourite accounts early in 2021. However, we anticipate much more reluctance to move on rate, the result will be the 10% most expensive carriers are likely to be dropped from placements."