Political violence cover gets pricier after Saudi Arabia attacks, marine war risk premium unchanged

Insurance costs are reported to have fluctuated following the latest attacks on Saudi Arabia. According to sources, marine war risk insurance rates were unaffected, while prices for cover against political violence and terrorism risks rose.

Sources speaking to The Insurer, a news service focused on the insurance sector and owned by Reuters, said the cost of marine war risk insurance for vessels passing through the Bab-el-Mandeb Strait stood at around 3% and had not changed since the escalation of Houthi attacks in early September.

Two marine insurance underwriters, however, noted that these prices are based on a small sample; since vessel traffic in the strait is low, pricing is drawn from a limited number of transactions.

The picture is different on the political violence and terrorism cover side. While there has been a marked increase in applications for this cover in the region, the total number of policies insurers have agreed to write has declined. One source said that in the face of the new wave of attacks on Saudi Arabia, prices for the heaviest risks have climbed to nearly 10%.

Where this decision comes from

The attacks also affected Saudi Arabia's main export routes. The East-West pipeline, which the country relies on during periods of tension in the Strait of Hormuz, was shut down last Friday following earlier drone attacks. Reuters reported on Wednesday that Saudi Arabia has been offering more crude oil via Oman's Sohar Port after the main pipeline heading to the Red Sea was damaged in drone strikes.

Impact on the sector

The picture shows that the same geographic risk is being priced differently across two separate lines: marine war risk premiums remain steady as vessel traffic falls, while political violence cover, which covers onshore facility and infrastructure risk, is becoming more expensive. The decline in the number of policies is a separate indicator from price: insurers are not only raising prices but also cutting capacity.

The angle that's missing

Lloyd's announced in early September that it expected losses of £1.4 billion ($1.88 billion) linked to the conflict in the Middle East. The report does not say whether this estimate has been updated — yet without reading the contraction in capacity together with the trajectory of expected losses, it cannot be said whether the price increase is lasting or temporary.