Cheap reinsurance stops at the quay as war premiums enter the barrel

Two-speed renewals, one-way reading

In our last two reports we wrote that the January renewal is running at two speeds and that unmodellable risk is heading towards the state's door. This piece goes a step further. It asks why cheaper reinsurance is not reaching the freight bill, and how the channel that stays expensive feeds into the cost of goods. First, the decline itself. SCOR said on 30 October that it was seeing reductions in the high single to low double digits on European catastrophe programmes. Hiscox Re said on 3 November that its rates had fallen 14% over nine months.

Bermuda points the same way. Arch's gross reinsurance premiums fell 8% in the third quarter to 2.31 billion dollars. On 3 November Hamilton closed a 300 million dollar catastrophe bond at a 4.25% spread against a 2.66% expected loss, a multiple of about 1.6. This decline is happening in the property catastrophe tower. The same SCOR statement also says rates have risen significantly in the loss-hit marine, energy and war lines, without giving a percentage.

The numbers show why the war line is decoupling. Howden Re's estimate, reported by Insurance Business, puts war, terrorism and political violence losses at 2–3 billion dollars, against annual global premium for the segment of 1.5–2 billion dollars. On 22 September Marsh Re put losses above 2 billion dollars and the premium base at about 2.5 billion dollars. The two brokers use different bases, but both show the line has exhausted its premium this year. In Hiscox's third quarter, too, a quiet catastrophe year was offset by Middle East losses.

How a premium becomes a cost per barrel

The constraint lies not in the rate but in the cost per voyage. According to Marsh data, the Hormuz war premium was about 0.25% of hull value before the war. It rose to 2% in early July and 7.5–10% at the end of July, before easing to 3–8% at the end of August. On 14 October brokers quoted a range of 6–10% for tankers and a cost of up to 20 million dollars for a single VLCC voyage. More than 20 ships were attacked in the region in the first two weeks of October.

Spread across the cargo, the picture becomes clear. On a VLCC carrying about 2 million barrels, a 20 million dollar premium works out, by our calculation, at about 10 dollars a barrel. The Red Sea coast is cheaper but not free. According to Insurance Journal, on 25 September a voyage from Yanbu paid about 3 million dollars, and one from Saudi ports further south or through Hormuz about 7 million dollars. Before the war, the same voyage paid at least 100 thousand dollars.

The structure of cover locks the cost in. War premiums typically cover a 7-day voyage period and are repriced every 24 hours. Owners add that uncertainty to charter rates; according to the same report, Saudi producers are paying at least 500 thousand dollars a day to charter tankers. Neil Roberts of the Lloyd's Market Association says cover is available at a price. In other words, the gate has not shut, but the toll has been written into the cargo.

The second channel: P&I and containers

The war premium is not the only channel. The pooled reinsurance programme of the P&I clubs, which carry shipowners' third-party liabilities, is also getting more expensive. Insurance Business reported on 30 October that for 2026/27 the reinsurance charge rose 15% for fully cellular container ships and fell 5% for dry bulk carriers. Lockton expects a general increase averaging about 5% for 2027, and Gallagher 2.5–5%. The reserve of more than 2.8 billion dollars for the Dali collision in Baltimore will feed into the 2027 excess-of-loss negotiation.

Container freight does not yet fully reflect this cost. The Drewry World Container Index fell 3% on the week to 4,429 dollars per 40-foot container on 29 October; Shanghai–Rotterdam stood at 3,686 dollars. The same report says only 2 ships crossed Hormuz last week, while weekly Suez transits rose to a year high of 62. Drewry lists possible surcharges as a risk for the coming weeks but gives no amount.

Second-round effects on the cost of goods

The last link in the chain is importing economies. Kpler data show crude exports through Hormuz in the week to 12 October at about 8.5 million barrels a day, roughly 40% below pre-war levels. Windward counted 13 transits on 4 October, against a pre-war daily average of about 135. As volumes shrink, a war premium of 3–10 dollars rides on every barrel. It is a cost that passes into goods prices with a lag of 1–3 months, through refinery output and petrochemical feedstock.

Türkiye sits at the buying end of this chain. Every importer of Gulf crude and products pays the per-barrel war premium inside the CIF price, the delivered price that includes insurance and freight. How much of this cost reaches Türkiye's import unit values cannot be separated out today, because the sources do not give war premiums for Türkiye-bound voyages. The Türkiye effect is therefore our inference, not a measured figure.

The rate channel is at work here too. In our previous report we wrote that a risk-free yield of about 5% raises the extra premium demanded for unmodellable risk. In the war line that effect is compounded: with losses of 2–3 billion dollars exceeding premium, reinsurers will bring capacity back only at high prices. Howden Re said on 2 November that the January 2027 rate floor will remain above 2017 levels. A high general floor further weakens hopes of reductions in the war line.

What would refute the thesis

The thesis is that on 1 January 2027, property catastrophe rates fall while marine war and P&I reinsurance renew at higher prices, and that this cost stays inside freight per barrel and per container. The falsifier is concrete. If early-January broker reports show flat or falling rates for marine war or political violence reinsurance, the first link breaks. If the Hormuz tanker war premium falls below 2% of hull value before 31 January 2027 while attacks continue, the second link breaks.

The third falsifier lies in freight. If the P&I clubs' 2027 general increases stay below 2.5% and the Drewry index keeps falling below 4,429 dollars without surcharges, the second channel weakens. The near-term calendar is set. Swiss Re's nine-month results are expected on 5 November, though the date could not be verified on the company's site. Munich Re will publish its final quarterly report on 12 November. Hannover Re's date appears as 9 or 12 November and could not be verified. The Global War Risks Insurance Summit in Dubai takes place on 26–27 November.