Insurers slash war premiums for Strait of Hormuz ships

Insurers are significantly canceling policies and raising prices for ships traversing the Gulf and the Strait of Hormuz. This intensified financial risk for shipping companies comes as conflict threatens maritime traffic in crucial routes near Iran.

The price increases are substantial, with some reports indicating a 60% hike for key routes near Iran. War risk insurance premiums for vessels transiting the Strait of Hormuz have surged dramatically, with one report noting a twelvefold increase. Rates now stand at 3% of a ship's hull value, a stark rise from approximately 0.25% before the US and Israeli strikes on Iranian targets on February 28 and Tehran's subsequent missile and drone response.

The cost of cover has escalated to about 5% of a ship’s value, roughly five times the level observed in the early days of the conflict. In some instances, war-risk insurance has skyrocketed to about 4% of a ship’s value for a seven-day policy, an astounding 4,000 times higher than pre-crisis levels of around 0.001%. This makes passage through the strait prohibitively expensive and risky for many operators.

While Lloyd's of London continues to offer coverage for vessels in the Strait of Hormuz, the market notes that demand for tanker coverage has plummeted as operators prioritize safety and security. The Lloyd’s Market Association’s Joint War Committee confirms that coverage is available, but underwriters are now reviewing risks on a case-by-case basis due to current threat perceptions, in light of more than 25 attacks on commercial vessels.

The US International Development Finance Corp., in collaboration with Chubb, proposed a $20 billion reinsurance backstop to revive shipping, but Moody’s Ratings suggests this plan might be insufficient as it excludes liability cover. Fitch Ratings anticipates negative credit implications for US property and casualty insurers heavily exposed to Gulf shipping routes if the withdrawal of hull war-risk marine insurance persists, and reduced shipping volumes could offset gains from increased war-risk rates.