Analysis-Maritime insurance premiums surge as iran conflict widens

Analysis-Maritime insurance premiums surge as Iran conflict widens

By Noor Zainab Hussain and Manya Saini

Surging Maritime Insurance Premiums Amid Gulf Conflict

March 6 (Reuters) - As the conflict in the Gulf widens, maritime insurance premiums for war coverage are surging -- in some cases by more than 1000% -- dramatically driving up the cost of moving energy through a critical maritime corridor.

Impact of Conflict on Shipping and Insurance

The conflagration sparked by Saturday's Israeli-U.S. air strikes against Tehran has paralyzed traffic through the Strait of Hormuz, a major shipping chokepoint. Iran on Monday said it would fire on any ship trying to pass, and at least nine vessels have suffered damage in the area since the conflict began.

War Risk Insurance Explained

War risk insurance allows ship owners to claim against any damage to their vessel or the cargo resulting from conflict or terrorism. Policies are typically annual, although some cover one-off voyages through risky waters, including war zones.

Rising Costs and Inflation Fears

The spike in premiums underscores how the war is raising costs for ship owners, traders and energy companies moving cargo through the Strait, adding to fears the conflict -- which shows no signs of abating -- could stoke inflation if it goes on, said analysts.

Immediate Market Reactions

"The hull war market has reacted more immediately," due to the risk of large, concentrated losses if multiple vessels are hit in the same area, said Stephen Rudman, head of marine, Asia, at global insurance broker Aon, adding that if the situation escalates materially, further rate correction is likely.

"Additional premiums for vessels transiting high-risk waters are rising sharply and may continue to fluctuate in the short term," he said.

Cargo war risk premium rates are also increasing, with quotes being reviewed on a voyage-by-voyage basis, particularly for energy and bulk commodity trades, he said.

Estimated Losses and Premium Increases

Analysts at Jefferies estimated on Thursday that potential industry losses from at least seven vessels reported damaged, at the time its note was published on March 5, could reach up to $1.75 billion.

With most tankers valued between $200 million and $300 million, the new insurance rate of 3% would imply a hull war risk premium of about $7.5 million, up from around 0.25%, or $625,000, before the conflict began, the brokerage added.

Angus Blayney, marine divisional director at Gallagher, a major insurance broker, told Reuters that rates have increased and are changing daily depending on vessel type and individual circumstances, but he did not provide specific figures. He added that cover remains available.

Dylan Mortimer, marine hull UK war leader at insurance broker Marsh, estimated that ratings are roughly trending between 1% and 1.5% of vessel value, with a slight variation both upwards and downwards depending on specific risk factors.

"Rate spectrum is wide and varied depending on many factors, including whether vessel is east of or west of the Hormuz chokepoint," Mortimer said.

Concentrated Risk and Market Response

Shipping Chokepoint and Vessel Exposure

CONCENTRATED RISK IN THE AREA

More than 20 million barrels of crude, condensate and fuels passed through the Strait daily last year on average, data from analytics firm Vortexa showed. About a fifth of the total oil the world consumes passes through the Strait.

"There remain approximately 1,000 vessels, about half of which are oil and gas tankers, with an aggregate hull value exceeding $25 billion in the Persian/Arabian Gulf and surrounding waters," Lloyd's Market Association's CEO Sheila Cameron said in a statement.

Cameron added that the vast majority of these vessels were insured in the London market and insurance "currently remains in place".

At least 200 ships remained at anchor in open waters off the coast of major Gulf producers, Reuters reported on Wednesday.

Reinsurer and Supply Chain Implications

Morningstar DBRS wrote in a note earlier this month that reinsurers may respond by raising the loss level at which their liability kicks in, or reducing capacity, "leaving primary underwriters retaining more risk and potentially pressure solvency levels."

"Supply chains will be stressed as goods are rerouted via the Cape of Good Hope or overland routes, increasing transit times and costs," it added.

Policy and Administrative Responses

U.S. Government Actions

ADMINISTRATION SEEKS SOLUTIONS

The Trump administration is exploring ways to bring down oil prices by getting shipping routes moving again.

On Tuesday, President Donald Trump said the U.S. Navy could begin escorting oil tankers through the Strait of Hormuz and added he had ordered the U.S. ​International Development Finance Corporation to provide political risk insurance and financial guarantees for maritime trade in the ​Gulf.

U.S. officials also met with Marsh to discuss the matter, the company said on Wednesday. A Lloyd's spokesperson also said the company was engaging with the Development Finance Corporation and relevant stakeholders to find solutions.

Uncertainty and Industry Outlook

But analysts said it remains unclear how the administration intends to intervene and whether any scheme would apply to ships and cargo of all nationalities. In the absence of an alternative, they expect many ship owners to reinstate their previous cover at a higher rate and absorb the costs.

"It's like insuring a burning building," Dr Michel Léonard, chief economist and data scientist at Insurance Information Institute, said.

(Reporting by Noor Zainab Hussain and Manya Saini in Bengaluru; Additional reporting by Lisa Baertlein; editing by Michelle Price, Shinjini Ganguli and Krishna Chandra Eluri)