Park Han-sol reports on Korea's financial regulators, along with fintech and insurance. She previously wrote about the art world, from biennales and exhibitions to fairs and auctions, with a focus on Seoul and the figures shaping the scene. Before joining The Korea Times, she spent a year at ABC News' Seoul bureau, contributing to coverage of major Asia-Pacific events.
Korean insurers face rising losses, reinsurance strain from prolonged Middle East conflict
An oil tanker moves through the Strait of Hormuz, a key route for global oil shipments. Reuters-Yonhap
By Park Han-sol
As tensions in the Middle East drag on and the Strait of Hormuz remains in a chokehold, Korean insurers are bracing for worsening loss ratios — fallout that could drive up premiums and add to inflationary pressure on the overall economy, according to industry officials Wednesday.
The disruption to the key shipping corridor, which carries roughly one-fifth of the world’s oil and gas, following the Feb. 28 strikes on Iran by the U.S. and Israel, has rippled across insurers’ underwriting and investment portfolios.
For Korean companies, the strain is most visible in marine hulls and cargo lines, with 26 vessels reported stranded in the Persian Gulf in early March.
“As of now, we’re not seeing a steady stream of direct vessel losses in the Strait of Hormuz. But the longer the disruption drags on, the more costs build up, weighing on insurers’ bottom lines,” an official at a local non-life insurance company said.
“In wartime, insurers typically cancel previous marine policies and reoffer coverage at higher war-risk premiums, leaving clients to opt in. And if the situation stabilizes quickly without major incidents, that could help limit the deterioration in loss ratios," the official said.
The Financial Supervisory Service estimates potential insurance payouts tied to affected vessels and cargo at about 1.69 trillion won ($1.12 billion), with Samsung Fire & Marine Insurance, KB Insurance and Hyundai Marine & Fire Insurance accounting for the largest shares, in that order.
War-risk premiums for ships transiting the strait have surged to around 5 percent of a vessel’s value as of March 16, from just 0.125 to 0.2 percent before the conflict — a jump of up to 40-fold, according to the Korea Insurance Research Institute (KIRI).
“Risk exposure in Hormuz has risen, increasing the likelihood of sizable claims if a marine accident occurs,” said Kim Jin-eog, a senior researcher at KIRI.
Given Korea’s heavy reliance on imported crude, with more than 70 percent sourced from the Middle East, prolonged disruptions also affect broader energy security, he added. “So beyond the direct exposure, higher oil prices are feeding into broader cost pressures, including higher raw material costs, thus driving up payouts across other lines of insurance and further straining insurers’ loss ratios.”
As such losses mount and weaker investment returns weigh on insurers, companies are likely to pass on rising costs through higher premiums — a typical chain reaction in the industry. This shift is already visible in the market, with major Protection and Indemnity (P&I) clubs and private insurers imposing stricter terms, charging higher premiums and, in some cases, declining to underwrite new policies tied to the Middle East region.
An illustration shows a map of the Strait of Hormuz and a 3D printed oil pipeline. Reuters-Yonhap
Beyond primary insurance losses, another layer of risk lies in reinsurance, where insurers transfer part of their exposure to global reinsurers to manage large-scale losses.
Korean companies, in particular, cede a significant portion of their marine insurance contracts to Korean Re and overseas reinsurers to spread risk. However, as Middle East risks mount, global reinsurers have been scaling back their underwriting capacity, driving up reinsurance rates and thus increasing costs for domestic insurers.
In response, governments around the world have begun exploring backstop measures. The United States, for instance, has launched a $20 billion government-backed maritime reinsurance program in coordination with Chubb and the U.S. International Development Finance Corporation. Korea may discuss potential state-backed reinsurance support along similar lines.
Still, such measures may have a limited impact if underlying risks continue to deter shipping activity in the first place.
“Right now, the government can, in theory, offer coverage, but if ships can’t transit the route at all, the insurance becomes irrelevant,” Kim said. “If vessels don’t pass through, there is no demand, no matter how much coverage is made available.”