Insurers cancel war-risk cover as war rages across Persian Gulf
War-risk insurers have issued cancellation notices for policies covering ships moving through the key oil chokepoint of the Strait of Hormuz.
Insurers NorthStandard, Steamship Mutual and Skuld have all cancelled certain war risks due to reinsurer risk appetite for war-risk exposure reducing.
However, broking giant Aon said that reinstatement of war risk cover is being offered at materially increased rates, rather than denying coverage for ships sailing into the region.
Near-term rate increases for marine hull insurance in the Gulf could go as high as 50%, according to brokerage Marsh.
Iran has already warned cargo vessels negotiating the crucial Strait of Hormuz, where one third of the world’s oil travels through, that the 39-kilometer passageway is closed to shipping.
“It is very early to tell at this point, but we would estimate that near-term rate increases for marine hull insurance in the Gulf could range from 25 to 50 per cent, barring any direct attack on merchant shipping, which could have major repercussions across war insurance rates,” said Dylan Mortimer, marine hull UK war leader, Marsh.
For a $100 million vessel, this would mean an increase from $250,000 to $375,000 per voyage.
Iran, the US and Israel trading missiles has halted shipping transits, grounded flights across major Middle East hubs, and raised missile strikes on commercial infrastructure, such as a hotel in Dubai, increasing underwriting uncertainty across multiple insurance lines.
In the immediate term, insurers could see a sugar rush from rate hikes, but the comedown could be bad with industry-wide losses. Marine, aviation, property, travel and supply chain insurance lines face heightened underwriting volatility and aggregation risk. Reinsurance capacity could also tighten up.
Prolonged disruption to energy flows and global transport networks could also increase financial market volatility, said Marsh, affecting insurers’ investment portfolios and capital buffers.
Prolonged transport disruption and market volatility could pressure earnings and capital for insurers with concentrated specialty exposures, warned Morningstar DBRS.
“The Iran conflict adds to a series of recent geopolitical crises that have already pressured the profitability of marine and aviation insurers,” said Marcos Alvarez, managing director, global financial institution ratings at Morningstar. “While surging war risk premiums may support earnings, the concentration risk in narrow corridors, such as the Strait of Hormuz, and the risk of simultaneous losses across multiple lines increase underwriting volatility.”
Stephen Rudman, head of marine, Asia, Aon said that at this stage, the broker was not seeing a systemic withdrawal of capacity. Rather, the market was repricing to reflect the elevated risk profile and reinsurance constraints. Should the situation escalate materially with sustained state conflict or significant vessel loss, further rate correction is likely, said Rudman.
In the UAE, the strikes hit various interests in Abu Dhabi and Dubai, which could have knock-on effects for reinsurers. For example, Munich Re reinsures the iconic Burj Khalifa in Dubai, which has already been evacuated as a precaution. Burj Khalifa alone is a $1.5 billion property in the heart of the $20bn Emaar Properties district.
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