Marine insurers fighting to free themselves from net of geopolitical risks

The marine insurance market has been “caught in a net of nationalism” as growing geopolitical risk and sanctions test the market like never before.

Speaking at the end of its winter meeting in London, International Union of  Marine Insurance (IUMI) president Frédéric Denèfle said the ongoing issues around war risks in Ukraine, further sanctions on Russian oil exports, sanctions against Iran and new threats from the Iranian government over transit for vessels in the Persian Gulf was just some of a multitude of risks which faced marine insurers and their clients.

“We have all kinds of issues affecting the market,” he explained. “The market is operating in a very difficult environment. We are facing polycrises. A crisis in the economy with inflation, a crisis with the geopolitical situation, a crisis with the internal market and its efforts to meet the needs of our clients, and a crisis with the relationship with our reinsurers at renewal.”

Denèfle added insurers had been shocked by the tough line the reinsurance sector had taken with the primary, markets over capacity for war risks and the cost of the invasion of Ukraine continue to mount.

The end of this month will see a year to the start of the invasion of Ukraine at which time the owners of the 40-45 vessels still trapped in Ukrainian ports will be able to lodge claims for the total write off of their vessels. If they do so it will leave the insurers with a bill estimated to be in excess of $700 million.

“As a result of the continuing war in Ukraine, the reinsurance market is unwilling to provide cover for risks involved in insuring maritime vessels in the region,” he explained. “Stakeholders had to find solutions for these risks and provide contracts on the hull and cargo said. The challenge insurance companies face: How they would find their way around the risks without the support of reinsurers.”

The solution it seems has been for the risks to be spread across a wider co-insurance programme with more insurers taking a smaller percentage of the risks. It has created the challenge of understanding the accumulation threat for underwriters, given the safety net provided by reinsurers has been removed.

Denèfle said insurers were now keen to understand where there vessels were, how long they were intending to stay in waters deemed a war risk, and how many other vessels they insured were also in the area.

He said the situation was complicated by “facing new sanctions”.

“In recent days we have seen new sanctions on Russia, we have sanctions against Iran, sanctions taken by Iran in response to those sanctions and new threats from Iran around navigation through the waters of the Persian Gulf,” he explained. “Marine insurance is caught in a net of nationalism.”

“Iran imposed sanctions on individuals and entities from the European Union and Britain. This was in reaction to similar measures they have taken over Tehran’s response to months-long protests.

“The impact of the actions means that Iran will halt shipping trade against any nation that has raised sanctions and embargos against their interests, which have enormous implications for the Persian Gulf.

“With the ten most prominent and active ports globally in China and the most significant volume shipped from China, the marine insurance industry will have to monitor the ongoing threat in Southeast Asia and the increasing tension between China and Taiwan.”

Denèfle concluded: “We have to find solutions to cope with these challenges and to understand these regulation and how they work,” Denèfle added. “We are trying to create a structure and deliver a positive message to our clients. We need to show how resilient we are.”

The end of this month will see a year to the start of the invasion of Ukraine at which time the owners of the 40-45 vessels still trapped in Ukrainian ports will be able to lodge claims for the total write off of their vessels. If they do so it will leave the insurers with a bill estimated to be in excess of $700 million.

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