When the Cover Disappears: Marine Insurance and the Hormuz Dislocation

The Strait of Hormuz did not just raise premiums. In a matter of days, it withdrew cover from around 1,000 vessels and redirected a material share of global maritime traffic through an entirely different route. What the data shows about how the market moved offers a clear picture of how marine insurance risk actually behaves when the system is under pressure.

 

A coverage event, not a claims event

The conventional lens for marine risk focuses on loss events: a vessel damaged, a cargo claim, a piracy iFncident. The Hormuz disruption challenged that framework directly. This was not primarily a claims event. It was a coverage event, the rapid withdrawal of insurance from a significant portion of the global fleet transiting one of the world’s most commercially critical waterways.

All 12 members of the International Group of P&I Clubs issued war risk for the Persian Gulf and Strait of Hormuz. MS&AD, Japan’s largest non-life insurer, separately suspended underwriting of war risk policies in the region entirely. The result: approximately 1,000 vessels collectively valued at around USD 25 billion, found themselves without cover in a single weekend.

For underwriters and portfolio managers, the implications go beyond the event itself the Hormuz disruption is a case study in how modern marine risk behaves under pressure, and a prompt to ask whether current frameworks are built to detect and respond to these dynamics before the market moves.

How the pricing moved

The headline figures capture the scale but not the structure. Understanding the Hormuz disruption as a risk event requires looking at how pricing moved across the escalation cycle. The rates were not uniform:

The move from a pre-event range of 0.05-0.2% to a peak of 7.5-10% of hull value represents an increase of up to 200 times the baseline rate for affected vessels.

The vessel-nationality dimension is significant. Vessels linked to the US, UK and Israel faced rates at the higher end of the range, and in some cases considerably above it. Indian and Chinese flagged vessels faced materially lower war risk rates throughout, reflecting the different perceived threat profiles attached to vessel ownership and flag state rather than the physical corridor risk alone.

The practical implication for underwriters is that a single corridor-level war risk premium does not exist. Portfolio exposure in the region depends on the specific composition of vessels covered: their flag, their ownership profile, their trading counterparties. Two underwriters with nominally identical Gulf exposures could have experienced very different premium trajectories through the disruption.

When price stops working

A standard market response to elevated risk is a pricing adjustment. Higher premiums compensate underwriters for increased exposure; demand adjusts, the market finds a new equilibrium. The Hormuz disruption revealed the limits of this mechanism at scale.

War risk premiums rose to levels at which many voyages became commercially unviable. At 7.5 – 10 % of hull value, the economics of a standard transit collapsed for most operators. Voyages did not reprice; instead, they ceased or they moved.

For portfolio managers, this matters for a reason that does not show up in claims data: when trade contracts rather than reprices, premium pools shrink. The coverage withdrawal that made 1,000 vessels uninsurable also removed a substantial portion of potential premium income from the market, while simultaneously concentrating the remaining insurable exposure among operators with the lowest perceived risk profiles.

Where the exposure went: the Cape of Good Hope reroute

When Hormuz and Suez transits became uninsurable or commercially unviable, the default alternative was the Cape of Good Hope. The traffic data shows how substantial that shift was.

Cape transit volumes were already elevated in early 2024 relative to the prior year, reflecting earlier Red Sea disruptions from the Houthi campaign. The June 2024 figure represents a 46% increase on an already-elevated base. The cumulative effect was a fundamental redistribution of global marine traffic.

The underwriting challenge created by this shift is not simply a longer voyage. The Cape of Good Hope corridor carries a materially different risk profile from the Hormuz/Suez route: a longer time at sea, different weather exposure in southern hemisphere winter months, West African Gulf of Guinea piracy risk on approaches, and fewer emergency port options on the southern African coast.

Compounding this, the corridor had not previously carried this volume of traffic. War risk and hull models for the Suez route are built on years of accumulated loss experience. Cape models, by contrast, are thinner and calibrated to a historically lower-volume corridor. Some underwriters found themselves pricing the new traffic from limited or outdated loss histories, producing rates that reflected uncertainty as much as assessed risk.

The rerouting, in other words, did not simply transfer the Hormuz risk problem to a different geography. It generated a new and distinct pricing uncertainty problem on a corridor that had not previously demanded close analytical attention.

Hormuz in context

The Hormuz disruption is striking in its intensity, but the dynamics it illustrates are not unique to this event. The same convergence of geopolitical trigger, rapid coverage withdrawal, and trade redistribution is visible, to varying degrees, across a sequence of recent marine risk events:

• Red Sea / Houthi attacks (2023-2025): A near identical pattern of war-risk escalation, P&I coverage restrictions, and Cape rerouting. In some respects a more sustained disruption than Hormuz, running across longer periods with more consistent traffic displacement.

• Black Sea (2022-present): War risk rates for Ukrainian port calls reached 3-5% of hull value. These are levels at which commercial operation became effectively impossible for standard cargo vessels. Coverage withdrawal preceded formal market re-entry on restricted terms.

• Panama Canal drought restrictions (2023-2024): A climate-driven disruption that produced Cape rerouting on Pacific-Atlantic trades, generating the same thin-data pricing problem on unfamiliar corridor-exposure.

These events do not operate independently. A disruption that closes one corridor redirects traffic through another, which may carry different piracy risk, different weather exposure, different regulatory constraints, and different reinsurance appetite. The system is structurally more unstable than any single risk factor suggests, and the pace at which it moves is accelerating.

The speed problem

Across all of these events, one feature stands out: the market moves faster than traditionally intelligence workflows are built to track. The shift from normal corridor operations to mass coverage withdrawal happened within a compressed window. Underwriters relying on periodic market reviews, annual renewal data, or aggregated loss statistics were navigating the event with a picture that was already out of date.

During the Hormuz disruption, Axco issued alerts vis the Global Risk Tracker, covering war risk developments and key market events as conditions evolved. The same infrastructure provided more sustained coverage of the Red Swea crisis across 2023-25. The information was not unavailable, but accessing it in time requires a monitoring approach calibrated to the speed at which these events develop.

Underwriters and portfolio managers who were tracking the risk pricing and P&I coverage conditions in good time had a narrower but genuine window to adjust terms, capacity deployment, or treaty structure before the peak dislocation. Those who were not found themselves responding to a market that had already moved.