THE cost of war risk insurance for Red Sea transits is expected to increase in the days ahead, as underwriters come to terms with the latest developments in the Middle East, including the air strikes on Yemen on Thursday night.

Most sources who spoke to Lloyd’s List indicated that the market will now go into rangefinder mode, with insurers having to second guess the reactions of their competitors and gauge how much shipowners still seeking to route via the Red Sea are willing to pay.

One underwriter predicted that any owners looking for a quote are likely to find that “the high/low spread is substantial, as [insurance] carriers are trying to arrive at a sound market rate”.

There have been some 40 attacks on merchant vessels in the key waterway since last November. But insurers have typically adopted a relatively sanguine approach, pointing out that no major casualties or fatalities have resulted.

Additional premiums — known as APs — for a single trip so far this year have been somewhere around 0.3%-0.35% of hull value. That is if anything slightly below where they were before Christmas, after the advent of the Operation Prosperity Guardian naval intervention calmed nerves.

Indeed, owners with no claims bonuses under their belt and able to negotiate volume discounts on account of the size of their fleets were probably getting away with half of that.

But the US and UK air assault on Yemen makes a fresh assessment look inevitable, and the big question is how much it will be seen as a game changer.

A prominent broker noted: “There’s not been a lot of movement rate-wise in the past few days and it will be interesting to see how the market deals with the changed situation.”

The Red Sea has long been designated a listed area by the Joint War Committee of Lloyd’s and London companies underwriters, giving insurers the option but not the obligation to levy APs.

But in practice, in recent years the region has not been seen as presenting particular risk. APs typically stood at a nominal 0.05% prior to the onset of the Gaza fighting in early October, and in practice, many underwriters waived them altogether.

With the outbreak of hostilities, they rose to 0.1% to 0.2%, with uplifts of up to 250% of that figure for Israeli owners, who have been singled out in Houthi rhetoric. Some underwriters were unwilling to cover Israeli owners at all.

For liner operators, pricing is now largely a theoretical issue anyway, with as many as 90% of east-west boxship users now giving the Suez Canal a swerve and taking the long way round the Cape of Good Hope instead.

Matters are arguably more acute for tanker operators. For a brand new $150m VLCC booked for a stem in Saudi Arabia, APs could now potentially hit $450,000 per trip.

Pricing for suezmaxes — the biggest tankers that can fit fully laden through the Suez Canal — have been steadily increasing since bottoming out in 2020, buoyed by demand from dark fleet operators determined to circumvent sanctions against Russia and Venezuela.

Taking the value of a five-year-old suezmax as $75m, a war risk premium of 0.3% comes to $225,000 a trip. Each additional one-tenth of a percentage point hike in APs will ratchet that up by $75,000.

With the Baltic Dirty Tanker Index giving a current time charter equivalent day rate of $61,219, that works out as less than a single day’s extra hire.

Premiums for less valuable tonnage will be pro rata, and past experience suggests this level is not enough to deter profitable fixtures, especially if the cost can be passed on to shippers.

By way of comparison, quotes for the Black Sea — where bulkers exporting Ukrainian grain have been declared a legitimate military target by Russia — remain at between 2.5% to 3%, despite no attacks of late.

The key difference is that marine Red Sea war risk is still readily reinsurable. By contrast, Black Sea and Ukrainian port calls have to be written “net line”, with the full payout at an insurer’s own expense.

Frédéric Denèfle, managing director of Paris-based Garex the biggest continental European war risk insurer, commented: “In summary, one can expect that threat will remain but that marine war insurers will still provide their support under a tougher rating approach.

“The situation might really get more complex if the war expands in the Middle East. We will have to wait and see and gather as much information as possible on the attacks, and collect advice from the navies involved on the safest way to navigate in the area.”

Perhaps the big fear is the aggregation risk from sudden port closures if hostilities ramp up into a regional conflagration, which could leave multiple vessels subject to blocking and trapping claims.