Insurance Clubs to End Ship War-Risk Cover in Persian Gulf
(Bloomberg) -- A majority of the world’s largest maritime insurance mutuals said they will withdraw war risk insurance cover for ships entering the Persian Gulf starting on Thursday.
The withdrawals are likely to discourage ship owners from loading cargoes within the Persian Gulf, which is the source of about a fifth of the world’s supply of crude and a key exporter of refined fuels and liquefied natural gas.
See also: Iran Strikes: What’s at Stake for Oil Markets as War Spreads
From midnight London time on March 5, war-risk covers from seven clubs will be terminated automatically if vessels enter the Persian Gulf, specific adjacent waters or Iranian waters, according to notices seen by Bloomberg News.
Japan’s main private insurer will also cancel war risk coverage from midnight London time on March 6, according to a notice from the Japan P&I club on Monday. The decision only affects war risks, with other terms of cover remaining unchanged.
This specialized form of insurance protects shipowners and charterers from third-party damages resulting from war, terrorism and piracy, among others. The cost of cover, which is region-specific, has spiked during times of geopolitical tensions. Insurance rates for the Persian Gulf have doubled to around 0.5% of a ship’s value recently, according to market participants.
“We would estimate that near-term rate increases for marine hull insurance in the Gulf could range from 25% to 50%, barring any direct attack on merchant shipping, which could have major repercussions across war insurance rates,” said Dylan Mortimer, marine hull UK war leader at Marsh, the world’s largest insurance broker.
Some P&I clubs are expected to issue similar cancellation notices to those published by other members of the International Group on Monday, according to people familiar with the matter. There could be provisions for insured parties to seek cover at higher rates based on certain requirements, those people added.
There are currently 12 members of the International Group of Protection and Indemnity Clubs.
“It remains to be seen what the practical impact will be on commercial vessels entering or leaving the Persian Gulf, and whether shipowners choose to continue transiting the Strait of Hormuz under heightened risk conditions,” said Munro Anderson, director of strategy and operations at vessel protect, one of the largest providers of marine war risk cover.
The international group comprises nonprofit, mutual insurance associations that provide maritime cover to about 90% of the world’s ocean-going tonnage. The clubs that have so far decided to pull war-risk cover are Gard AS, NorthStandard Ltd., Steamship Mutual Underwriting Association Ltd., Assuranceforeningen Skuld, American Steamship Owners Mutual Protection and Indemnity Association Inc., The Swedish Club and the London P&I Club.
Adjacent waters to the Persian Gulf include the Gulf of Oman, and waters west of Oman’s Cape al-Hadd, stretching northeast to near the Iran-Pakistani border.
At least one Japanese insurance firm has also reduced its cover due to the escalation in the Middle East. MS&AD Insurance Group Holdings Inc. suspended underwriting of various insurance products covering war risks in waters surrounding Iran, Israel, and neighboring countries, a spokesperson said.
Two other Japanese insurers, Tokio Marine Holdings Inc. and Sompo Holdings Inc., said they’re monitoring developments.
(Updates with notice from Japan’s P&I Club, potential new developments and rate increment.)
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