British flag tankers facing six-figure extra hit on war risk premiums
British-flagged tankers are up against pricing discrimination on the war risk insurance market, with premiums jacked up by tens of thousands of dollars per trip after the Stena Impero seizure. That is a palpable incentive to quit the Red Ensign, insurance sources warn
One UK flag owner is said to have been quoted as much as 0.8% of hull value for a single trip, implying an additional cost of $500,000 in comparison with rates on offer to rivals
BRITISH-flagged tankers are facing pricing discrimination on war risk insurance for transits through the Middle East Gulf, with premiums jacked up by tens of thousands of dollars, market sources have told Lloyd’s List.
One Red Ensign owner is said to have been quoted as much as 0.8% of hull value for a single trip, implying an additional cost of $500,000 in comparison with rates on offer to rivals.
UK merchant shipping is currently being advised by the government to avoid sailing to the Gulf after the seizure of British-registered Stena Impero by Iran’s Revolutionary Guards in the Strait of Hormuz last week.
That some are asking for insurance quotes anyway indicates that they are electing to ignore that counsel, rather than say no to stems.
But with provisional reflagging to open registries available online in a matter of hours, the Red Ensign may now witness a further outflux of tonnage, in addition to vessels it has lost on account of Brexit uncertainty.
Reports on Monday, the first business day after the capture of Stena Impero, initially suggested that rates were steady, as the chances of something of this nature happening had largely been priced in.
That picture has now changed. As of midday on Wednesday, owners were generally paying about twice as much for war risk cover than they did in the early months of this year, with British-flagged tankers at the sharp end.
War risk premiums are determined by the hull value of a vessel, which in the case of a five-year old very large crude carrier is about $70m, according to data from VesselsValue.
They naturally vary from ship to ship, and factors such as volume discount are hugely important.
However, the ball park figure for the Middle East Gulf before the current escalation of tension was about 0.02%.
But a new list of war risk areas was introduced on June 1, following attacks on four vessels in Fujairah on May 12.
By mid-June, following two further attacks, rates spiked at 0.15% to 0.4%, a ten or even twenty-fold increase. Unconfirmed reports claimed some owners were subsequently asked for as much as 0.6%-0.75% per voyage.
One broker said that London market underwriters are now separating out bulkers and tankers, with bulkers getting quoted at 0.2%, and most tankers quoted at 0.3%-0.4%.
However, some British tankers have paid 0.5% to his certain knowledge, and one insurer is said to have quoted 0.8%.
Each tenth of a percent is an additional cost of tens of thousands of dollars, equating to $70,000 for the average five-year-old VLCC.
“Different underwriters are taking different views,” said a prominent broker. “Some are effectively considering dry cargo vessels as a lower risk. I haven’t quoted British-flagged vessels, on the basis that the advice from the authorities is that they should sit tight and not go through.”
The broker added: “We are in a weird position where anything British is a worse risk and therefore is being penalised financially, which goes against the grain somewhat, particularly when it’s your own nation.”
Keener deals are still on the table from mutuals, according to Rod Lingard, joint managing director of Thomas Miller-managed UK War Risks.
Mr Lingard said that his club is still offering 0.2% for a transit through the Strait of Hormuz, and 0.3% for a transit plus a call at a local port within 14 days, unchanged from last week. Nor is it quoting more for UK flag shipping.
“We are still holding a nerve and our rates haven’t changed from Monday,” he said.
Oslo-based Den Norske Krigsforsikring for Skib is UK War Risks’ main mutual competitor.
Managing director Svein Ringbakken said that his club was also quoting about 0.25%, although a rating meeting is due in the next few weeks.
“It all depends on developments. If new things happen, new attacks or seizures, it will definitely impact on the market,” he said. “If nothing more happens, it will take quite some time for this to calm down.”