Two weeks in. And the insurance market has told us everything we need to know.
Two weeks in. And the insurance market has told us everything we need to know.
All 12 members of the International Group of P&I Clubs — the mutual marine insurers that collectively cover 90% of the world's ocean-going tonnage — have issued 72-hour notices of cancellation of war cover in the Gulf. Lloyd's Joint War Committee has expanded its high-risk designation to the entire Persian Gulf. The hull war risk market is quoting rates of up to 1% of ship value per voyage — for vessels that aren't even transiting the Strait, just operating in the Gulf.
For a tanker worth $100 million, that is $1 million for a single voyage. Before the war, that same coverage cost $125,000–$150,000. The market has repriced risk by a factor of seven in two weeks.
The operating context
At the peak of the crisis, some stranded tankers were paying 10% of hull value as additional war risk premium in mid-March. That is not insurance. That is extortion by mathematics.
At least five tankers have been damaged. Two seafarers have been killed. Around 150 vessels are stranded around the Strait. The UK Maritime Trade Operations Centre has logged over a dozen attacks on commercial vessels. The value of ships trapped in the Persian Gulf is at least $25 billion, according to Lloyd's Market Association estimates.
Here is the mechanism that matters: insurance didn't collapse because of the attacks. Insurance collapsed because of the architecture of the market itself. The interlocking P&I, reinsurance, and Joint War Committee designation systems are tightly coupled. A single conflict-zone designation triggers cascading cancellations across the entire market simultaneously. The physical threat doesn't have to be that large. The commercial cascade can be out of proportion to the kinetic reality.
What changes the decision
The US government announced a $20 billion maritime reinsurance program, with Chubb as lead partner. Moody's said it won't be enough — because it doesn't cover liability risk. Without P&I liability cover, shipowners face the prospect of a tanker strike causing a Dubai beach oil spill worth more than their entire company. Management won't accept that exposure regardless of the premium.
The bottom line: when the insurance market stops pricing for return to normal and starts pricing for permanent high-cost reality, the shipping market follows. And the shipping market is there already.
Predictive Intelligence. Human Insight. — Lars P.S. The Strait carries 3,000 vessels per month in normal times. In the first three weeks of March, 111 vessels transited — most of them Iranian-linked or sailing with AIS transponders switched off. That is a 96% collapse in traffic.