Global unease ripples through marine reinsurance

It eventually became a relatively quiet place. International agreements tamed the risk of seaborn action between political enemies, and effective policing eased the piratical threat. The war risks market (now expanded to include almost any aggressive or malicious acts, even by non-state actors) was small and predictable.

No more. As the global geopolitical temperature rises, so does the risk that vessels become casualties of conflict. Nations no longer feel restrained from attacking merchant shipping for political ends, and pirates are back in action. Since the 2020s, a new war has erupted almost every year to threaten vessels. Violence at sea is once again having a tangible impact on marine reinsurance.

• Iran and Israel have traded attacks on shipping in the Strait of Hormuz as part of their ongoing proxy conflict.
• China openly harries commercial and fishing vessels in the South China Sea.
• Since November 2023, militant Houthis have successfully launched missiles, drones and explosive-laden boats at vessels in the Red Sea.
• In the Caribbean and the Pacific, US forces have sunk vessels suspected of smuggling narcotics.
• Oil tankers in the Black Sea have been hit by Ukrainian rockets in recent weeks.
• Pirate attacks have resurged in the Somali Basin.

Many of these are “gray zone attacks”. The perpetrators are not at open war with vessel-owners’ nations, but instead are exercising extraterritorial extension of their state authority, sometimes through third-party agents. Their intent is to pressurize rivals in the absence of a declared conflict.

State-sponsored cyberattacks are another proliferating type of asymmetric marine warfare. Every day, malicious actors launch as many as hundreds of spoofing attacks against vessels. They transmit false GPS or AIS signals to interfere with navigation systems. That can make vessels look like they’ve been where they have not, causing all sorts of mayhem. One ironic impact is that they may disrupt systems designed to issue insurance endorsements automatically, based on AIS signals, when vessels enter war-zone waters.

Reinsurers’ response to this change of global circumstances has been to pressure marine carriers to restrict underlying coverage.

• First came the so-called “RUB” exclusions, which required insurers to hold back coverage for vessels connected to Russia, Ukraine, or (curiously) landlocked Belarus.
• Next, reinsurers flexed their muscles to ensure International Group P&I clubs carved out war risks from their charterer’s policies, and offered sub-limited stand-alone third-party war coverage instead. Some charterers ended up paying more for war cover than the cost of their conventional P&I.
• Currently, reinsurers are applying pressure on marine carriers over aggregation risk.

Accumulation risk was long believed to be absent from marine reinsurance markets (for hull risks, at least), because vessels tend to be on the move. Now it’s manifest.

Hints emerged during the Covid crisis, when a No Sail Order by the Center for Disease Control suspended all US passenger-ship cruising. More than 30 liners were left at anchor near Miami, among 114 halted along the entire US coastline. About 93,000 crew members were stranded aboard.

Reinsurers were alerted then to the possibility of accumulation risks, and since have spotted others. One is the increased number of vessels rounding the Cape to avoid Houthi rockets. Another is “blocking and trapping” risk. Following Russia’s invasion of Ukraine, scores of foreign-owned merchant vessels were stuck in ports including Mariupol, Kherson, Mykolaiv, and Odesa. As many as 60 were or are eligible to claim under blocking and trapping heads of coverage.

That hasn’t translated into an enormous accumulation loss for marine reinsurers, but the closely related aviation war market was hit badly by the conflict. The multibillion dollar loss caused by the seizure of passenger jets at its outset rang very loud alarm bells in marine reinsurance markets.

In response to accumulation risk, they are now imposing stricter treaty terms intended to thwart it, sometimes including geographical aggregation controls. These may become a defining feature of the 2026 renewal.

With good reason. The risk of accumulation became reality less than two weeks ago, when multiple tankers, flagged variously by Liberia, Panama, Bahamas and Russia, were damaged by explosive-laden drones whilst anchored at Tuapse, a Black Sea oil port. Shore infrastructure and the terminal building were also damaged, halting operations.

The vessels may be part of the “shadow fleet” transporting Russian oil in violation of international sanctions, but that does not mean they are not reinsured. For example, a Reuters investigation revealed in late October that a well-known international insurer, widely reinsured in international markets including Lloyd’s, has (knowingly or accidentally, but definitely routinely) provided coverage to sanctions-busting tankers.

Even if trading legitimately, the affected vessels are probably uninsured under their normal war risks coverage due to the RUB exclusion. However, they may be covered under a War Risk Extension Clause. Under the International Group’s excess of loss reinsurance program, for example, reinsurers have imposed a RUB exclusion, but will grant separate, sub-limited coverage for an additional and significant premium per gross ton.

In some cases where insureds have mitigated geopolitical risk by rerouting, insufficient premium remains to be collected along original routes to form an effective risk pool. So few vessels now traverse the Red Sea, for example, that one major loss would almost certainly exceed total premium. Increased war-risk reinsurance layering and higher attachment points cannot account for premium insufficient to cover losses.

As for the cyberattacks, after many years of wrangling over the wordings and definitions, marine reinsurers now often opt to avoid conflict-related cyber risk. For example, the Lloyd’s Market Association has developed and published multiple exclusion clauses. One of these, LMA5630, or War and Cyber Operation Treaty Reinsurance Exclusion B, removes reinsurance protection for losses arising from war, and specifically for “cyber operations that are part of such,” as well as “cyber operations causing major detrimental impact to a state.” It includes a Differences in Conditions provision allowing reinsurers to follow insurers’ own underlying cyber war exclusions, which similarly have become commonplace.

Meanwhile, the wider marine market is softening. New entrants are numerous, especially through MGAs and facilities, and when new capital seeking risk exceeds new risk, rates tend to fall. The war risks reinsurance market is not immune to the general trend. It seemed in 2024 that a new global conflict kicked off every year, but by 2025 the losses arising from wars had begun to seem limited and manageable. The 2026 renewal has begun with everything seeming not as bad as it could be. The rate declines seen a year ago under treaties covering the risks of the seas are more likely to be repeated than reversed.

Meanwhile, reinsurers have revisited their marine models, first to incorporate the possibility of increased storm-related losses due to the warming environment, but also to incorporate geo-political risk, the clustering of vessels arising from rerouting, new sanctions exposure and lately, the return of piracy. Rising model complexity increases uncertainty, which may be reflected in rates.

Times have changed. The risks of war and aggression have reemerged dramatically, and upended the predictable marine reinsurance market. The 1 January 2026 marine renewal is likely to be characterised by competition and falling rates, but for war risks, caution is the catchword.