Credit Repair Articles >> What Will Be the Cost of Costa Concordia?

What Will Be the Cost of Costa Concordia?

Ezine - 02/22/2012

Print What Will Be the Cost of Costa Concordia? Print | Email What Will Be the Cost of Costa Concordia? Email | Comments | Share What Will Be the Cost of Costa Concordia? Bookmark Us

The much publicised sinking of the Costa Concordia cruise ship off the coast of Italy in January was a major disaster for the cruise industry, costing many lives and leaving many others undoubtedly traumatised, and also serving to highlight the vulnerability of passengers on cruise ships and a lack of safety procedures and training on board the vessel.

In terms of the financial damage, the company's shares lost almost a fifth of their value in the immediate wake of the disaster. The shares collapsed by as much as 23% before ending the day 17% lower at Ã'18.65 - their biggest fall for a decade, wiping more than Ã'1bn off the market value of the company.

This also caused over Ã'300m to be wiped off the paper fortune of the multibillionaire boss of the FTSE 100 company Carnival, who owned the stricken cruise liner Costa Concordia. The chairman, chief executive and majority owner of the company, Micky Arison, saw a large chunk of his Ã'2.9bn holdings dissolve as the scale of the damage unfolded and the shares plummeted.

The fall in shares value was instigated by fears that the high profile shipwreck will put people off booking cruises, exacerbated by the fact that the event occurred at the start of the peak booking season for cruises - the so called "wave season" of January to March. An analyst from William Blair & Co, Chicago, Sharon Zackfia, said that about one third of cruise holiday bookings are taken during these 3 month period, and consumer confidence in the industry will be understandably shaken.

Carnival said the Costa Concordia would be out of action until at least November and put initial estimates of the cost at $95m (Ã'62m), warning that it was "not possible to determine" the full cost of the disaster, and analysts such as insurers and those in actuary jobs and catastrophe modeling agreed predicting that the final amount is likely to be greater.

Moody's Investors Service said that the insurance costs may reach $1 billion once environmental damage and injuries are taken into account, presenting a serious cost to insurers but also having a future impact on insurance premiums within the industry.

The shipwreck "marks the first major insured loss of 2012 and will result in a drag on first-quarter 2012 earnings for affected firms," Moody's Senior Credit Officer James Eck said. "While damage to the ship will cost around $500 million, other items like personal injury and liability and environmental losses may bring up the final bill, the report said. Reinsurers will likely take on most of the burden."