Hormuz war risk rates yo-yo as underwriters watch politics unfold

Reports of double-digit quotes, but most seem to be going a lot lower

NO CENTRE of gravity for Strait of Hormuz war risk insurance premiums appears to be in place at Lloyd’s right now, as marine underwriters attempt to parse the weekend’s political developments in the Middle East Gulf. The war risk market has always been highly reactive to big news stories that impact risk perception one way or the other, and often moves sharply up or sharply down, given 24 hours or so to find a new equilibrium each time. But yesterday’s tentative peace deal between the US and Iran — under which could the key international waterway could reopen to shipping as soon as Friday — is difficult to read, given multiple false dawns in recent weeks. War risk policies are bespoke and premiums vary widely, with big name shipowners often enjoying loss-leader pricing and many others benefiting from no-claims bonuses and big discounts for volume business. However, it is usually possible to speak in terms of a going rate, based on feedback from what underwriters say they are charging and what they think their competitors are charging. Not this time. As was evident on Friday and is still the case today, it very much depends on who you speak to, and according to some sources at least, quotes are even yo-yoing with the time of day. One underwriting source, who preferred not to be named, said last week that additional premiums were back in the range of 8.0% to 10.0% range per week, a level last seen in the early days of the war. That now appears to be something of an outlier, or possibly “go-away pricing” for business underwriters don’t really want. Others insist that cover can still be had for a third of that level. A Lloyd’s coverholder — with a reputation for pricing keenly — said this morning that he had yet to detect any change on last week. But on his take, “SoH” trips — as Strait of Hormuz transits are known in underwriter shorthand — can still be covered at 1.5% to 3.0%. A Lloyd’s war risk underwriter came in between the two others, arguing: “Rating will depend on the value of the vessels. For example, a big LNG vessel left last weekend at a rate of 2.5%. “But lower-valued vessels will command a higher rate, between 3.5% and 5.0%. Fifty percent NCBs are commonplace irrespective of value. However, rating can change several times during the course of the day as the situation develops.” Even at this stage, there are plenty of things that can still go wrong. While the working assumption is that Israel will fall into line with the deal between Washington and Tehran, following terse and reportedly expletive-laden telephone conversations between US President Donald Trump and Israeli prime minister Benjamin Netanyahu, the country is not bound by the agreement. Moreover, in the Middle East, ceasefire is a relative term and does not rule out continued military action on either side. The fighting since last February has been a big hit for the hull war risk niche as a whole, with London and Lloyd’s in particular set to bear the brunt. On the most recent tally, something like 40 vessels have been damaged in the war to date, with at least three total losses. But underwriters will be cushioned by the continued receipt of premiums from vessels trapped in the MEG, and much of the payout pain will eventually land on reinsurers.