FT: Hormuz shipping insurance costs plunge after US-Iran deal

The cost of insuring vessels transiting the Strait of Hormuz has fallen by more than half over the past six days, cutting expenses for individual ships by hundreds of thousands of dollars, industry brokers said.

Premiums for hull war-risk insurance have dropped from approximately 5% of a vessel's value to around 2% after discounts, following the ceasefire agreement signed between the United States and Iran last week, Financial Times reports.

For months, shipowners faced soaring insurance costs as vessels remained in the Gulf amid concerns over potential Iranian attacks. Premiums for some of the world's largest tankers had climbed to millions of dollars per week due to heightened security risks in the strategically vital waterway between the Arabian Peninsula and Iran.

Despite uncertainty over the weekend, when Iran announced the strait would be closed again in response to Israeli attacks on Lebanon, maritime traffic has continued. According to trade intelligence firm Kpler, at least 172 vessels have passed through the Strait of Hormuz since June 18.

"Now ships are trading, there's plenty of [insurance] supply," said Marcus Baker of insurance broker Marsh.

Growing confidence in the security of the route has also been reflected in the use of Automatic Identification System (AIS) transponders. In the weeks preceding the peace agreement, many ships crossed the strait with their location signals switched off to reduce the risk of being targeted. Since the agreement, vessels have increasingly resumed transmitting their positions.

Container shipping giant MSC, which has previously had several vessels targeted and two ships seized by Iranian forces, sent the container ship MSC Qingdao through the strait on June 20 with its transponder activated.

The head of one shipping company said decisions to transit the waterway depend on a combination of risk assessments, insurance coverage, and approval from charterers.

"You need those three layers to come [up] with something that resembles a green light," the executive said.

While hull insurance rates have eased significantly, brokers noted that war-risk cargo insurance covering commodities such as oil and grain has remained broadly unchanged since the agreement was signed.

"The longer this [US-Iran agreement] continues without incident, rates will continue to improve," said James Reason, a broker at WTW. "Everyone remains cautious, however, and there are still reports of mines in parts of the Strait of Hormuz transit corridors."

Following US and Israeli strikes on Iran in February, insurers informed hundreds of shipowners that policies would be cancelled or renewed at substantially higher rates. The insurance industry faced criticism after premiums rose by as much as twenty times compared with pre-war levels.

By Vafa Guliyeva