Riyadh is considering a state-backed war-and-political-risk insurance scheme to cover ships operating in the region. It recently held talks with brokers in London on the issue, the Financial Times reported earlier this week, citing individuals familiar with the plans.
The potential scheme comes after months of maritime attacks by Iran and its proxy groups, particularly in the Strait of Hormuz, where shipping has dropped from over 100 vessels crossing per day to, at times, only single digits.
In response to the frequent attacks, insurance agencies have raised prices and restricted coverage for vessels, infrastructure and cargo such as oil and chemicals. Some insurers have also refused to cover ships planning to cross vital waterways in the region, including the Red Sea, where Saudi Arabia has redirected much of its oil exports since it was forced to redirect shipments from the Strait of Hormuz.
Within weeks of the war beginning, war risk premiums grew from 0.25% of hull value to between 3% and 10%, according to Marsh, a global professional services firm specializing in risk, strategy, and insurance brokerage. With Iran seeking a fee of between 5% and 7% of the value of cargoes from ships using the strait, according to a Reuters report citing a senior Iranian official, and Oman seeking a fee of around 3%, the cost of shipping in the region has increased drastically, including for those willing to risk US sanctions by paying the fees.
Saudi Arabia considering offering cheaper insurance to increase transit
Saudi Arabia’s economy, like that of many countries in the region, has been severely impacted by the war. Its gross domestic product shrank by 4.8% on an annual basis from April until the end of June, and its oil activity plunged by 24.7%, the General Authority for Statistics reported in July.
Under the potential scheme, according to the FT, the Saudi Finance Ministry is considering offering a cheaper insurance option through a pool system [a shared fund]. The insurance would provide up to $186 million in commercial cover for each insured event, including potential seizures or missile attacks.
While insurers and reinsurers would still remain responsible for the first layers of coverage, entities would be able to claim hundreds of millions of dollars more through a fund provided through the Saudi Export-Import Bank.
Reinsurers Saudi Re and Riyadh Re would lead a group of participating reinsurers, which could also include international firms, in one version of the plan under discussion.
None of the banks have publicly commented on the reported proposed deal.
“Cover is certainly still attainable in the region; I don’t see this as a market in crisis,” political risk consultancy Enmetena Advisory founder Maximilian Hess told the FT.