London-based reinsurers of ships are canceling their coverage of war risk and demanding 200% more to reinstate policies, according to people familiar with the matter, after a US submarine sank an Iranian warship off Sri Lanka, amplifying risk perceptions.
Rates for shipping lines to buyback this cover that usually climb as much as 50% in wartime have instead tripled in some cases — rising to $750,000 per vessel from $250,000, the people said, asking not to be identified because the information is private.
Most policy cancellations have been initiated since Thursday, they said, adding that premiums vary depending on vessel flag, ownership, and ports of call. Bloomberg News has seen a cancellation notice dated as recently as March 4 — the day a US submarine sank the Iranian warship.
The US submarine attack in international waters — the first time since World War II that an American sub has attacked a surface vessel — has further triggered a surge in risk premiums for hull and related marine coverage. The Indian Ocean strike, far outside the Middle East war zone, underscored fears that the conflict’s impact is widening geographically, the people said.
The worsening situation in the Persian Gulf remains the primary concern, said Hitesh Joshi, executive director with additional charge as chairman and managing director at GIC Re.
As an immediate impact on the marine war-risk cover, “notices of cancellation are being issued by international marine underwriters,” he said. “The restoration of covers is being carefully considered at much higher rates.”
High-Risk Zones
If hostilities persist for another 10 days, buyback options may no longer be available, the people said. Limited buybacks outside the Strait of Hormuz are still being offered by some London market insurers, said Balasundaram R, head of marine insurance at Policybazaar for Business.
Insurers and reinsurers, he said, have canceled coverages in war-affected areas after GIC flagged its seven-zone hull war-risk plan, effective March 1. The amended plan designates high-risk waters including Pakistan, the Persian Gulf, and Iran, besides territories subject to sanctions by the UN, the UK, the US or EU.
Read More: Marine Insurers Cancel War Risk Cover as Iran Conflict Escalates
Marine insurers were assessing their exposures and reacting according to the provisions of their contracts which could include giving notice of cancellation, Bloomberg News reported earlier this week citing Neil Roberts, head of marine and aviation at Lloyd’s Market Association.
Cargo insurance has also been affected. War-risk cover for cargo, once about 0.03% of cargo value, has jumped to around 1% in affected zones, the people said.
“As the period of conflict lengthens, it is bound to impact pricing across all risks and liability covers,” Joshi said.
Photograph: A crude oil tanker off the coast of Gibraltar. Photo credit: Marcelo del Pozo/Bloomberg
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