Marine underwriters' approach to hull war risk pricing has diverged following an apparent calming of tensions in the Persian Gulf.

Marine hull war rates for ships heading to the Gulf jumped in mid-2019 following a spate of attacks on oil tankers in the Strait of Hormuz, a key shipping channel, in May and June of that year, and the seizing of British-flagged vessel Stena Impero in July.

Marine hull and machinery war policies exclude territories listed as areas of "perceived enhanced risk" by the Joint War Committee — a group of underwriting representatives from the Lloyd's of London and non-Lloyd's company market — and so vessels traveling to these territories need specific per-journey war cover.

Tensions flared again at the turn of the year, after U.S. President Donald Trump ordered the killing of Qassem Soleimani, an Iranian general and leader of the elite Quds Force, on Jan. 3, 2020, and Iran retaliated with missile strikes on U.S. air bases in Iraq on Jan. 8. A source told S&P Global Platts in a Jan. 8 report that hull war risk premiums "will now be higher" than the 0.3% of hull value that was being charged before Soleimani's killing.

Dividing opinion

Since the U.S. air base strikes, and the controversy over Iran's accidental downing of a passenger jet the same day, all has been relatively quiet in the Gulf. Tom Hunter Blair, executive chairman of Lloyd's of London broker Meridian Risk Solutions Ltd., said that while additional war premiums rose "dramatically" following the attacks and seizures in 2019, the market has now become "very split" in its views about the threat levels in and around the Persian Gulf and the region as a whole.

"Underwriters all have their own analysts who appear to differ as to the threat levels that they perceive prevail," Hunter Blair said via email. "A different class of tonnage doing a different job in the region may easily attract a starkly different level of additional premium."

Neil Roberts, head of marine underwriting at the Lloyd's Market Association trade body, said in an interview that while underwriters still require vessels to notify them when they head to the gulf and still require additional premium because of the heightened risk, "their levels of reaction will be different." He added: "Basically they will be assessing each voyage on an individual basis, and some will be charging more than other people."

In general, upwards pressure on pricing has abated, according to Roberts. "The tension has gone down, so everything finds its level," he said, adding that brokers would "make it very clear to underwriters" that continued price rises when tension had eased were "unacceptable to clients."

That is not to say the tension has dissipated completely, however. Roberts said marine underwriters are "watching with care" and that "no one is quite sure how it will develop next."

And whereas prices are diverging for hull war coverage, there is a more definite trend on the cargo side. Hunter Blair said prices for cargo war cover, which before summer 2019 was included in standard cargo cover without additional charge, had risen "dramatically" and were now at between 0.1% and 0.175% of cargo value per port call, usually with a 10% no-claims bonus applied.

Standing firm

Further hostility is conceivable. Roberts said the U.S.'s "maximum pressure" approach to dealing with Iran, and Iran's continuing resistance to this strategy, means that "it will be reasonable to expect further harassment of vessels." He acknowledged, however, that Iran could also take a more "asymmetric" approach, for example by initiating a cyberattack on a U.S. financial institution.

If tensions rise again, so too will rates, and even the threat of more hostilities could keep rates relatively high. Jonathan Moss, partner and head of marine and trade at law firm DWF, said in an interview that he had not been aware of any fall in premium in the past few weeks of relative calm and that "the threat of retaliation from Iran still remains."

"Whilst there are threats from Quds and from various factions supporting Iran, then I don't see that there will be any drop in insurance premiums in the near future," he said.

A more prolonged period of calm could remove some of the upward pressure on marine hull war rates, according to Moss. He said that if in six to eight months, there are no further hostilities and there is "a reduction in President Trump's rhetoric," then "perhaps there will be a regularization in the market."

But he also said insurers could use recent events, "perhaps justifiably," to sustain current higher rate levels.

Moss said: "It is an old adage ... that once there is a reason and an excuse to raise rates, then it can be quite a challenge and a struggle for insureds to demand and to see a lowering of those rates."

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.