Gov't checks marine insurers' war-risk reinsurance amid Middle East tensions
The handout photo made available by the Royal Thai Navy shows the Thai-flagged cargo ship Mayuree Naree on fire after being hit by Iranian missiles in the Strait of Hormuz, Wednesday.
The Financial Supervisory Service (FSS) is examining whether local nonlife insurers that provide marine insurance have adequate war-risk protection through their reinsurers as attacks on vessels continue near the Strait of Hormuz amid escalating tensions following U.S. and Israeli military strikes on Iran, officials said Wednesday.
Marine reinsurance contracts generally exclude full compensation for losses arising from armed conflicts. When geopolitical risks intensify, insurers are often required to purchase separate and significantly more expensive reinsurance coverage specifically designed for war-related damage.
Reinsurance is a mechanism that allows insurers to transfer part or all of the risks they assume to another insurance company. Firms rely on such arrangements to reduce potential financial exposure from large-scale claims.
The financial watchdog recently asked major domestic nonlife insurers, including Samsung Fire & Marine Insurance, DB Insurance and Hyundai Marine & Fire Insurance, to verify whether their reinsurance arrangements include protection against war-related risks.
“We understand that most Korean insurers have secured reinsurance coverage that incorporates war-risk provisions,” an FSS official said.
Security concerns around the Strait of Hormuz have increased sharply after the U.S. began its strikes on Iranian targets.
The narrow waterway carries about one-fifth of the world’s oil shipments, and the deep shipping lanes used by very large crude carriers lie within Iran’s territorial waters.
Iran has reportedly launched attacks on vessels transiting the strait in retaliation for the U.S. and Israeli military operations.
Industry sources here say about 20 Korean ships are currently navigating the area.
Typical marine insurance policies include additional clauses addressing war-related risks. However, when the likelihood of actual military confrontation rises, insurers may issue a 72-hour notice requiring shipowners to move to specialized war-risk policies with much higher premiums. Without renewing these policies, damage caused by war is generally excluded from compensation.
If insurers fail to secure adequate war-risk backing from reinsurers, their financial exposure could rise significantly in the event of an incident.
A very large crude carrier is typically valued between 100 billion won ($68 million) and 200 billion won, meaning insurers could face compensation liabilities exceeding that level if a tanker were attacked.