ALL 12 International Group of P&I clubs are now thought to have a buyback in place for charterers’ and fixed-premium Middle East war risk, albeit at pricing that has seemingly caused some clients to balk.

While premiums will be subject to the usual marine insurance nuances, a hypothetical anchor-handling tug operator may be faced with the prospect of paying $30,000 a week for cover that previously came at $25,000 a year, in which instance the business case might not stack up.

At the other end of the scale, the higher rates may well look like small change for big-name oil majors and trading houses, especially given the bottom-line boost they can anticipate now that crude has hit $84/barrel.

The marine mutuals were forced to move fast after the reinsurers of the charterers’ and fixed-premium products invoked their 72-hour cancellation rights after the US and Israel commenced military attacks on Iran on Saturday.

The response has been to renegotiate the terms, with some underwriters putting in Stakhanovite 20-hour days to get the new arrangements ready by the hard deadline of midnight last night.

Widely reported claims that the development left some owners with vessels devoid of war risk cover were wide of the mark. But the new terms are anything but cheap, and already proving too expensive for some.

Brokers suggested that the process was made harder because the Lloyd’s syndicates and reinsurance carriers on the other side of the table knew full well that they had a strong hand and pushed home their advantage to secure restrictive warranties.

These include a provision that operators cannot have recently called at an Israeli port and will not do so in the coming period.

Meanwhile, mainstream shipowner war risk rates — which is what most people will understand by the blanket term “war risk insurance” — have naturally skyrocketed.

Seven-day breach premiums, which owners must pay for sending vessels into a high-risk area, have jumped by between four and six times over, from 0.15% to 0.25% of hull value to a benchmark of 1%.

The standout exception is for vessels with a perceived US, UK or Israeli nexus. These ships are paying up to 3% of hull value, which equates to millions of dollars a trip for more modern and thus more valuable vessel types.

A definitive statement on whether all 12 clubs made the cut would require checking with each club individually, a task Lloyd’s List has not been able to undertake immediately.

But multiple underwriting and broking sources said that they were confident that everyone had got there.

To clear up some of the common misunderstandings about this situation, the first point to grasp is that P&I clubs do not sell general-purpose war risk insurance to mutual entries. Payouts for war risks are specifically excluded under their rulebooks.

This is why marine war risk exists as a separate insurance class. Owners instead purchase an annual baseline policy, typically from a commercial insurer, for a premium running to hundreds of thousands of dollars.

These policies are subject to additional premiums — known as “APs” or “breach premiums” — every time a ship enters a designated war risk area, which are levied as a fraction of hull value and negotiated trip by trip.

Charterparties commonly provide that APs are for the charterers’ account. But just because the charterers have picked up the tab, it does not mean they cannot be sued if they are held responsible for a liability.

At this point, clubs step in with a fixed premium — which is to say, commercially priced — product encompassing all potential charterers’ liability, including war risk liability.

Shipowners can also buy extensions for war risk liabilities in excess of hull value, which is the upper limit on how far war-risk hull underwriters are prepared to go.

These policies are “non-poolable”: claims above $10m are not shared between IG affiliates. Each club has to sort out its own reinsurance. This very specific type of cover is at the centre of this week’s scramble.

Details of how the new arrangements will work are still coming in. Pippa Atkins of Lockton PL Ferrari said yesterday that she expected buybacks for charterers to be available for limits up to about $200m.

Rates were 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.

Andrew Bayman, chief operating officer at Wilson Europe, said: “Charterers buyback is now available from all or most clubs, at a maximum limit of $250m and a minimum limit of $50m.

“This is subject to various warranties as you would expect. For instance, owners [must show that they have] not conducted previous calls to any Israeli ports on or after October 7, 2023, and that there will be no onwards calls to any Israeli ports on the voyages covered.”

This was the date on which Palestinian Islamist group Hamas massacred 378 party-goers at the Nova festival outdoor electronic dance music event in Israel, marking the start of the latest round of hostilities in the region.

Reto Toggwiler, chief underwriting officer at the London Club, said that his marine mutual is now offering limits of up to $250m for charterers and $150m for owners’ fixed premium.

Pricing depends on the limit purchased. But these terms specifically exclude US or Israeli-owned, flagged, operated or affiliated vessels; all “blocking and trapping” claims if ships get held up are ruled out; and so are Iranian port calls.

Marsh’s managing director for P&I, Peter Hulyer, added: “The rating is similar across the market and higher limits are now available up to $500m, but will be fluid depending on factors such as the conflict itself, and as and when more reinsurers are willing to offer terms to the clubs.”

At those rates, the cheapest possible cover will come at about $30,000 a week. Prior to the reinsurers’ notice of cancellation, it would have come in as standard on a war-risk extension policy for a price tag of about $25,000.

It now falls to each shipowner individually to reach a determination on whether premiums at that level make sense for them. Feedback suggests that fewer than half are likely to say, “Yes, please.”

At the end of the day, the same reinsurance markets that provided the coverage in the first place are the ones providing the buyback coverage.

P&I clubs accept that their reinsurers have had to respond to the commercial reality that the conflict has left them with higher exposures and acted within their contractual rights.

A senior P&I source said: “Shipowners could have been in the region or on their way there, and there are lots of shipowners trapped in the region as well.

“They will have seen their cover lapse. If they want to buy it back, it’s a commercial decision. It’s a price-sensitive decision, because the cost is subject to the vagaries of the market.”

There is a distinction between providing charterers’ war cover for an LNG carrier and charterers’ war cover for an offshore work boat, he pointed out.

The pure indemnity rate is the same for both vessels. The operators’ likely profit margins aren’t. Chances are that $30,000 and more a week will look too steep in the latter case.

Even some relatively affluent charterers may conclude that as they are paying the owners’ AP anyway, a charterers’ liability extension is a luxury they can live without, especially if their exposure is only short-term.

“You can’t say, on a blanket basis, that this is good for some people and not for others. But it is quite expensive in comparison to what they are used to,” the source went on.

But this situation will become more finessed over time, as underwriters get a better handle on the risk profile.

“There could be an element of softening as time goes by. But no one’s got a crystal ball as to what the [Middle East] Gulf is going to look like in a week’s time. It’s just as likely that pricing could increase.”