Gulf war risk premiums topping double-digit millions of dollars per trip

PREMIUMS for seven-day war risk cover in the Middle East Gulf region are now up 10-fold on where they were before the US and Israeli attack on Iran and have more than doubled in the last week alone, according to market sources.

That said, there is a wide spectrum of pricing and safer vessels seem to be getting away with 1% of hull value or less, which is still a decent margin by normal standards.

However, feedback suggested that high-risk propositions were being quoted 7.5% yesterday and were almost certainly looking at 10% or more by the end of today (Wednesday, March 11).

Among those being asked for the most money are US nexus tankers, which have attracted the nickname of missile magnets.

“Interest in getting vessels through the Strait of Hormuz has picked up significantly this week,” said one Lloyd’s underwriter this morning.

“Quotes that had been put up last week are still live as owners assess the situation and find crew that are willing to run the gauntlet.”

By way of historical precedent, the typical rate applicable during the 1980s tanker war, when Iraq attacked 283 vessels and Iran 168 during their eight-year conflict, was about 5%.

There are apocryphal reports that 10% or even 20% was being asked for Black Sea in the immediate aftermath of the Russian invasion of Ukraine in February 2022, leaving some shipowners angry. Pricing subsided soon afterwards.

Every war risk contract is bespoke and some quotes will inevitably be outliers or even examples of “go-away pricing”, deliberately inflated because the insurer doesn’t really want the business.

But quotes inevitably price in risk, and vessels with a perceived American, British or Israeli association are regarded as Tehran’s top targets. These ships can expect to pay three times more for Middle East war risk cover than other tonnage.

A hypothetical five-year-old VLCC on charter to US interests is currently worth around $138m. Indicatively, that suggests insurers could be looking for anything from $10m to $14m — to the charterer’s rather than owner’s account — to cover a voyage through the Strait of Hormuz.

Most market sources believe that premiums have farther to travel once underwriters factor in the string of attacks on ships in the region today, with the projectile strike on Precious bulker Mayuree Naree (IMO: 9323649) being the most prominent. Three seafarers remain missing.

War risk cover not cancelled 

But most marine insurers resent that the widely reported claim that war risk cover in the Middle East Gulf has been cancelled or is otherwise unavailable.

This is incorrect; it is very much still on offer from Lloyd’s, the London market and elsewhere, even if it is now necessarily hugely more expensive to reflect the hugely higher risk.

At least one major marine war risk underwriter is given all Middle East business a wide berth right now. However, contracts signed before the fighting were naturally honoured.

Chris Jones is chief executive of the International Underwriting Association, which represents the London companies market.

“IUA members are continuing to provide cover for clients affected by the current hostilities in Iran across a number of lines of business,” he insisted.

“Trade has been halted, not by a lack of available insurance, but by obvious safety concerns. The market for marine war risks is operating in the manner we would expect.”

Hull war risk works on the basis of shipowners buying an annual baseline policy, usually for a premium of hundreds of thousands of dollars.

This protects them against such perils as unexpected wars, revolutions, terrorism, strikes riots and the catch-all term ‘civil commotions’.

But underwriters retain the right — but not the obligation — to charge an additional premium or AP for each transit through an area designated as high risk.

These can be as much as they see fit and are not infrequently waived altogether for favoured customers, particularly those who place hull business with the same firm.

Before Trump and Netanyahu launched their attack on Iran in late February, APs for MEG trips clustered in the 0.15% to 0.25% bracket. Premiums even seem to have been softening, thanks to the competitive pressures generated by excess capacity in the hull market.

Once underwriters got back to their desks the following Monday and took stock of the picture, the new benchmark quickly became 1%, with US, UK and Israeli-associated tonnage getting triple weighting. But the trend on pricing has only been one way since then.

“As of yesterday, rates were between 2.5%-7.5% depending on when they were quoted. Given the three attacks since yesterday evening, I’d expect that to move again today,” said one underwriter.

A rival underwriter went even further, contending that the market had fundamentally shifted in a matter of hours thanks to the increased intensity of the US and Israeli onslaught and the Iranian response.

“Rates from last night are almost certainly withdrawn. Rates today could be in the region of 10% minimum with many insurers likely to seek to control line size and exposure on any one risk.”

“Across the market we are seeing a number of states starting to discuss the escorting of vessels flagged, owned by or carrying cargo for the country in question. It remains to be seen whether this is tactically a viable option.”