IF SOME of the world’s most respected news agencies, broadcasters and business newspapers are to be believed, ships transiting the Middle East had their war risk insurance policies pulled at short notice last weekend.

What a cynical bunch those marine underwriters must be, many readers will no doubt conclude. They happily took the premiums but welched on the contracts as soon as the US and Israel launched an attack on Iran after flagging up the move weeks in advance.

Great story; it’s just that it isn’t true. War risk underwriters have been insuring ships against the consequences of military action for more than two centuries and pride themselves on stepping up to the plate when necessary.

All existing policies will be honoured, and new policies for future planned voyages are still widely available, even if a handful of insurers have made the judgement call not to quote for the time being.

It is correct to point out that contracts signed with shipowners from Monday onwards will come at a cost four or five times higher than rates that were available last week. But that’s just how the world is.

As Simon Lockwood of broker Willis put it: “Some media reports have suggested that marine war risk insurers have withdrawn all coverage. However, this is not the case currently. War risk coverage remains available.”

Meanwhile the hull & machinery war market remains open and the prospect of naval escorts will give confidence to shipowners and insurers alike, and could even bring down pricing, he added.

The notice of cancellation proffered by International Group of P&I clubs is largely a technical move and only affects a more limited cover known as charterers’ liability risk extensions.

These will expire at midnight tonight. But the clubs are working overtime to get replacement product known as a “buyback” in place by the deadline.

To put things in the simplest possible terms, all this means is that oil majors and trading houses will henceforth pay an additional bill for something they previously got as part of a package.

But these companies are famously not in the poorhouse and are likely to see their profits boosted by higher oil prices. In practice, this will be little more than a minor inconvenience.

If you want further details, read on. But forewarning it gets complicated.

The first point here is that the primary purpose of P&I clubs is to provide shipowners with cost price indemnification for liability risks. Payouts for war risks are specifically excluded under club rulebooks.

This is precisely why marine war risk exists as a separate insurance class. Owners buy an annual hull war risk insurance, usually from a commercial provider, for a baseline price running to hundreds of thousands of dollars.

These are available from the Lloyd’s, London and Nordic markets, as well as elsewhere. Some clubs also sell war risk cover commercially. But this is a for-profit bolt on, strictly hived off from their not-for-profit core P&I activity.

Shipowners then pay additional premiums or “APs”, levied as a fraction of hull value, every time a ship enters a designated war risk area.

Charterparties commonly provide for APs to be charged onto the charterer, on the grounds that the charterer ordered the voyage into the war risk area.

But just because the charterers have paid the APs, it does not mean they cannot be sued by the owners if the charterers are deemed responsible for a liability.

In a bid to close the circle and bullet-proof the system, clubs offer charterers a fixed-premium — which is to say, commercially priced — product encompassing all potential liability risks to a charterers’ account. This includes war risk liability.

These offerings are “non-poolable”, meaning that they are not covered by the IG pool scheme, under which IG affiliates share claims above a $10m retention.

Instead, each club has the responsibility independently to arrange reinsurance on its fixed book. This means they must find their own panel of Lloyd’s syndicates and other reinsurance carriers from within a relatively limited set of providers.

When the fighting in the Middle East began on Saturday, the reinsurers backing club charterers’ liability book suddenly got nervous and exercised their right to exclude Gulf claims, at just 72 hours’ notice.

This effectively forced the clubs’ hands, leading them to table notices of cancellation to their clients.

We have been here before. After the Russian invasion of Ukraine in 2022, clubs announced a similar exclusion pertaining to Russia, Ukraine and Belarus. This became known as “the RUB exclusion” in sector jargon.

There was a repeat performance in 2024, after reinsurers forced clubs to exclude the Red Sea after getting the jitters over the Houthi onslaught on merchant tonnage.

P&I leaders were privately furious both times, describing their reinsurers’ stance as “a knee-jerk response” or more crudely “an arse-covering exercise”.

The new Gulf exclusion shouldn’t prove any bigger a deal than the RUB or Red Sea exclusions.

The club reinsurers are ready to restore cover in return for additional premiums and will thus be making money from their stipulation.

From the club perspective, this is what is known as a buyback, as charterers are buying back the cover that was until a few days ago included in the charterers’ liability policy.

“Clubs have been scrambling to find buyback options, which should be available today,” said broker Julian South of Wilson Europe.

However, the process seems to be taking a bit longer than expected to put in place, with reinsurers being opportunistic by seeking to apply with some quite restrictive warranties, he added.

Pippa Atkins of Lockton PL Ferrari said she expected buybacks for charterers to be available for limits up to about $200m.

Rates are likely to be in the range of 0.04% to 0.05%, which is applied to the limit purchased rather than the hull value of a ship. For lower limits the rate will probably be slightly higher, at around 0.06%, Atkins went on.

Meanwhile, hull war risk underwriters are buckling down for what they expect to be an extended period of hostilities.

Munro Anderson of Pen Underwriting unit Vessel Protect, said Iran’s actions strike him as those of a state preparing for a protracted conflict rather than one believing its regime faces an existential threat.

Tehran’s recent declaration that the Strait of Hormuz is closed, coupled with warnings that vessels attempting transit may be attacked, has further dramatically reduced commercial traffic.

“The potential for prolonged conditions of severe commercial disruption and significantly enhanced risk profile look set to continue within the short to medium term,” said Anderson.

“There is growing potential for risk divergence across the region. In the near term, the Gulf of Oman may pose an even higher operational risk than the Persian Gulf.

“This is due to its smaller operating area, concentrated vessel traffic, strong Islamic Revolutionary Guard Corps presence, and Iran’s established pattern of targeting ships there, most recently highlighted by attacks on tankers approaching the strait.”

Even without a formal closure, a de facto shutdown of Hormuz through threats, interdictions or asymmetric attacks including drones or mines would continue to severely undermine the commercial viability of the region, said Anderson.