Hormuz crisis drives demand for new war reinsurance structures

THE Strait of Hormuz crisis is driving demand for reinsurance capacity in the war markets.

Both marine war as well as war, terrorism and political violence lines are seeing an increased demand, brokers said, as insurer seek to protect themselves against growing attritional war losses. 

Last week, Lloyd’s said its half-year results were impacted by a £1.4bn loss resulting from conflict in the region (the corporation did not specify how much of that was directly related to the Strait of Hormuz).

But, while the market has a good handle on the risks, current structures are not necessarily set up for an elongated conflict, brokers said. 

Nick Jay, chairman for marine, energy and technical lines at Marsh Re, said both onshore exposures, covered by the war, terrorism and political violence market, and the marine war market were starting to feel these losses.

“The marine war market is certainly an interesting place because we haven’t seen that sort of attrition and regular attacks since the 1980s, since the Iran-Iraq conflict,” he told Insurance Day at the Rendez-vous de Septembre. 

Jay said Marsh Re has placed between $750m of new consortia, quota share and excess of loss capacity across both classes of business in response to new demand for protection.

As part of the move to meet this opportunity, both lead-follow and quota share structures are developing to allowing leaders in war risks to bring more capacity to bear, he added. 

“Rather than relying necessarily on their existing programmes to keep writing this business, [lead reinsurers are] looking for new opportunities to partner up — partly lead-follow, placing a consortium behind their expertise, partly quota share and to a degree excess of loss,” Jay said.

Consortia work well for this type of war risk because it creates an alignment of interests, he added. “Your war towers are probably not designed for the continuance of the conflict and the exposures you might want to put against them,” he added.

Mainly war markets

So far, the impact of the Hormuz crisis has largely been contained to the war markets, Jack Kuhn, chief executive of Westfield Specialty said.

But it remains an area that most companies are watching closely as the conflict becomes a protracted affair with spikes of activity.

There are also many questions still open, Kuhn told Insurance Day in Monte Carlo, including whether vessels will have to pay for passage across the strait; and whether the mooted pipeline from Iraq to the Mediterranean will become a reality, taking some pressure off the global economy.

“It's been interesting to see and to understand as to what the new normal is going to be and what it’s going to mean for the marine market,” Kuhn said.

“But it’s not unlike what we saw coming out of the 1970s with the conflicts that were there and the impact that it had on the global economy with oil prices.”

David Flandro, head of industry analysis and strategic advisory at broker Howden Re, echoed that while there was the potential for the conflict to have a wider impact on interest rates — and subsequently the availability of reinsurance capital — currently the impacts were contained to the war markets.

“It isn’t as if we’re seeing rate increases in worldwide [business interruption or contingent business interruption], for example, because of the danger to supply chains,” Flandro told the Insurance Day podcast ahead of the Rendez-vous.

All of this is happening amid a backdrop of increased capacity and softening conditions in the wider marine re/insurance market. German reinsurer Hannover Re said the abundance of capacity had led widespread price reductions in the current year. 

Looking ahead to the January 1, 2027 renewals, Hannover Re said a “sharper distinction” will likely be drawn between loss-free and loss-affected marine programmes. 

Kuhn argues that between them, the conflict in the Middle East and the reserve deterioration of the Baltimore Bridge loss have together helped shore up the marine market. But he says: “I wouldn’t categorise it as a very hard market. It’s a stabilised market.”