DBRS Morningstar Warns of Rising War Insurance Premiums Following Houthi Rebel Attacks
After a series of Houthi rebel attacks on cargo vessels in the Southern Red Sea and the Gulf of Aden, DBRS Morningstar has issued a warning of potential “upward pressure on war insurance premiums.” The attacks have led to disruptions in global supply chains and shipping lines.
Analysts from DBRS Morningstar noted that major shipping lines have suspended services through the Red Sea due to attacks by Houthi rebels linked to the Israel-Hamas conflict. The analysts anticipate increased transit times, higher transportation costs, and strains on global supply chains as cargo ships are rerouted through the Cape of Good Hope.
In response to heightened security risks in the region, the marine insurance market has reacted by significantly increasing the prices of marine war coverages, restricting insurance capacity, and expanding the geographic area considered unsafe for sea navigation.
While a multinational naval coalition is expected to address security challenges in the region and protect freedom of navigation, DBRS Morningstar analysts predict that the financial impact on shipping lines, cargo owners, and insurers will persist.
Marcos Alvarez, Global Head of Insurance at DBRS, stated, “Any eventual war-insured loss is anticipated to be well within the absorption capacity of the marine insurance industry.” However, recent geopolitical events, such as the Russian invasion of Ukraine and the Israel-Hamas war, have prompted insurers to exclude automatic coverage of war and civil risk from cargo insurance policies, requiring premium surcharges when coverage is available.
Victor Vallance, Global Head of Energy & Natural Resources, highlighted that major oil companies, including BP, have temporarily halted shipments entering the Red Sea, affecting oil, petroleum products, liquefied natural gas (LNG), and other energy-related products. This disruption is expected to impact energy trade flows and potentially raise oil and LNG prices.
Tim O’Brien, Global Head of Diversified Industries, pointed out that, alongside the shipping disruption in the Red Sea and Suez Canal, drought conditions reducing Panama Canal shipping capacity have exacerbated the global impact. The restoration of network reliability is anticipated to take months, regardless of the duration of the current disruption or the effectiveness of proposed maritime task forces.
