NU Online News Service, Feb. 8, 2:32 p.m. EST

Despite significant natural catastrophes in 2010, the mining market is enjoying the same soft market insurance conditions that many other industries are experiencing, according to insurance broker Willis.

But the broker noted that only good risks that observe proper risk management practices are reaping the benefits of the market.

In a report released yesterday, the London-headquartered insurance broker said that despite a 30 percent increase in natural catastrophes last year, insurance rates for good quality risks continued to see a decline in their insurance pricing.

The decline was helped by a slight increase in capacity to $1.8 billion from new arrivals and reopened reinsurance and insurance books of business, according Willis' “Mining Market Review.” The attraction is the increased demand for raw materials and increased prices for commodities, the broker noted.

But that does not mean risks will see an automatic decrease in their rates.

“There has been a very noticeable 'flight to quality' with underwriters looking to focus their capacity on quality risks operated by groups that can show definitive proof of an embedded enterprise-wide risk management protocol, together with strong and defined sustainability commitment,” said Steve Higginson, Willis Mining practice leader in Australia in a statement.

“For these quality risks, rates in the mining sector have been generally softening over the past two years,” he added. “However, for risks that cannot illustrate the required degree of quality, the insurance market remains tough with high deductibles and relatively high pricing.”

The 100-page report, released at the Mining Indaba 2011 in Cape Town South Africa, which is conducted by Summit Business Media Company, owner of PC360 and National Underwriter, said that it is too soon to know what impact the recent floods in Australia will have on insurance pricing this year. However, catastrophes in Chile and New Zealand highlight “the importance of risk management and insurance to the mining industry.”

“With an ever increasing focus on the environment and increasing resource nationalism, mining activities are not only expected to be financially and technically sound, but must also demonstrate that they have a social license to operate by implementing sustainable development initiatives and supporting the local community,” noted Andrew Wheeler, Willis mining practice leader in the United Kingdom.

The report noted that:

• Merger and acquisition activity is expected to increase.

• The mining construction sector suffered few losses in 2010, attracting more capacity and raising the Probable Maximum Loss for the market to $2.8 billion on a 'best-in class' risk basis.

• Kidnapping of employees is becoming an increasing concern. Brazil, Mexico, India, the Philippines and Columbia were all indentified as kidnap hotspots.

• In some nations, notably Mongolia and Zambia, expropriation by the government is a growing concern.

• The terrorism market saw an increase in claims from the previous year with mining related losses in Colombia, Peru, Democratic Republic of Congo and Niger.