Global Insurance broker Willis Group Holdings released its yearly review rates for mining property damage and business interruption (PD/BI) insurance at the yearly Mining Indaba conference.

The company believes that PD/BI insurance rates are likely to soften in 2010, but could increase again if the volatile mining sector experiences a catastrophic loss.

The review states that 2009 saw calm return to the mining insurance sector after the unprecedented $3,5-billion in pro- perty claims, mainly the result of the commodity cycle boom, sent the market reeling in 2008.

“Last year was below average from a loss perspective, with claims totalling $400-million. Although the perils are no less signifi- cant, this has afforded a moment for the mining insurance market to take stock,” explains Willis mining copractice leader Steve Higginson.

Willis mining copractice leader Andrew Wheeler adds that, while the company expects to see the emergence of a buyer’s market for mining in 2010, the huge losses of 2008 remain fresh in underwriters’ minds. Should the sector sustain a signifi- cant natural catastrophic event or con- siderable machinery, property and business interruption losses, the rates in the property market may spike again.

The return of rising commodity prices and the resulting increase in exposure, together with the continuing change in climate conditions, are the main concerns for mining underwriters in 2010. The review reports that four signifi- cant factors on underwriters’ minds include debottlenecking, natural cata- strophe capacity, commodity prices and market security.

The review explains that insurers are putting pressure on clients to implement initiatives that change certain aspects of the production process to reduce delays, gain efficiencies and increase throughput in the mining process.

After the market shock of 2008, capacity is returning to the operational min- ing business, with at least three new markets writing nonproportional business reports. However, the review states that the level of capacity supply going into 2010 remains below the level of demand in natural- catastrophe-exposed areas, with capacity remaining tight for earthquake, rain event and flood insurance, especially for opencut operations.

Further, increasing prices have resulted in increased exposure for underwriters. Willis predicts that price caps will return in 2010 to provide underwriters with more certainty. If commodity prices return to 2008 levels, though, large placements may find capacity restricted once again. The review also indicates that many buyers continue to syndicate their risks to a wider range of reinsurers rather than to a single large- capacity provider.

Other key findings in the report include that the total PD/BI capacity in this sector is now estimated at $1,75-billion. The mining construction sector produced positive results for insurers in 2009, with few losses affecting the onshore construction insurance market; and rates and premiums are softening as new entrants have joined the market to bring global capacity to about $2,7-billion.

Since the start of the global financial crisis, Willis says, there has been between $2-billion and $4-billion in political risk claims from the mining industry. These have been concentrated in Ukraine and Kazakhstan but have also been seen in Brazil, Bahrain, Indonesia and Bolivia.

A number of political violence claims for mining assets were made in 2009, particularly in South America. This has resulted in reduced capacity and increased premiums that are contrary to the overall terrorism and political violence market, which is softening.

In the latest ‘Mining Market Review’, Willis experts comment across other mining classes and areas of interest, such as claims, directors and officers, liability, and marine, specie and piracy. The publication features a special reports section looking in-depth at issues such as environmental law, North American coal-mining, a consultant’s view on risk in the mining industry and a summary of the threats and opportunities facing the mining industry in the Philippines, Peru and the Democratic Republic of Congo.