U.S.-Backed War Risk Cover for Hormuz Will Have to Wait for Convoys

Tanker escort in the Arabian Gulf, Operation Earnest Will, 1987 (USN)

The Trump administration has worked out a co-insurance arrangement to provide war risk cover for shipping in the Strait of Hormuz and Arabian Gulf, to be administered by NYSE-listed insurer Chubb. The program has yet to start, Chubb CEO and Chairman Evan Greenberg says, because it is conditioned on the use of U.S. Navy convoys and escorts. At present, the Iranian threat in the strait remains elevated, and the Navy's attention is focused on blockading Iran's commercial traffic.

"The government wanted to support shipping through the Gulf when they think that the risk environment is such that they can support military convoys for ships," Greenberg said in a quarterly earnings call. "And that has yet to occur. The program is to insure shipping under those conditions."

The insurance program would be activated only if a convoy occurs; conversely, shipowners would have to purchase the insurance program to join the convoy, Greenberg clarified.

Chubb is the lead underwriter and manager for the $20 billion reinsurance program, co-financed by the U.S. International Development Finance Corporation (DFC) and announced in March. Under Chubb's management of pricing and terms, a consortium of American insurance firms would act as reinsurers, ensuring the availability of war hull, war P&I and war cargo insurance. "We have done it, number one, to support our country and to support our military; and number two, to support the global commons and the economy," Greenberg said.

The U.S. DFC is assuming half of the risk, he said, and the other half will be taken by the U.S. insurer consortium. "It's in place, and when conditions are such, then this . . . would potentially generate premium revenue. And stay tuned," he said.