“Writing into the fear, not away from it, is the key takeaway in this piece, along with my broader thoughts about the wartime shipping conundrum in the context of wartime insurance tradecraft. Weighing in from thirty years of experience as a bondsman who has never said, “Declined!”, the best underwriters treat uncertainty as a happy inventory, not the plague.”
In thirty years of underwriting and advising on risk, I have never seen a major international waterway closed not by naval force, but by the withdrawal of insurance. Yet that is precisely what has occurred in the Strait of Hormuz. When the United States and Israel launched coordinated strikes against Iran, the first system to buckle was not military but actuarial. Within seventy-two hours of the escalation, leading Protection and Indemnity clubs (including Gard, Skuld, NorthStandard, the London P&I Club, and the American Club) issued notices cancelling war risk coverage for Iranian waters, the Persian Gulf, adjacent areas, and the Strait of Hormuz itself (Meade, Lowry, and Raanan 2026). The effect was immediate and dramatic. Transits of all vessel types through the strait fell eighty-one percent within days. On March 1, just over one million deadweight tons of traffic passed through the chokepoint, compared to a January average of 10.3 million deadweight tons. Not a single LNG carrier transited that day (Diakun and Minchin 2026).
It is essential to understand the mechanics of what has happened. As the International Union of Marine Insurance explained, a Notice of Cancellation does not necessarily terminate coverage permanently. It is a mechanism for reassessing risk and reinstating coverage at adjusted terms (IUMI 2026). But the speed and breadth of the cancellations, combined with the physical danger underscored by projectile strikes on at least four vessels, one of which killed a crew member aboard the crude tanker MKD Vyom off the coast of Oman, created a cascading effect that functioned as a de facto blockade (Diakun and Minchin 2026). War risk premiums, which had clustered in the 0.15 to 0.25 percent of hull value range in the weeks before the strikes, surged to approximately one percent overnight. Vessels actually transiting the strait faced rates between 1.5 and 3 percent, with the upper end reserved for ships associated with United States, United Kingdom, or Israeli interests (Osler 2026).
This crisis did not arrive on the doorstep of a healthy system. Two years of Houthi attacks in the Red Sea had already depleted global war risk underwriting capacity. Premiums for Red Sea transits had increased twentyfold from late 2023, while transit volumes cratered sixty-five percent from pre-crisis levels by mid-2025 (Insurance Business 2026; Perera 2026). The Hormuz escalation struck what one analyst described as a system already hollowed out by twenty-six months of attritional bleeding (Perera 2026). Lloyd’s of London activated its major event response group, stress-testing syndicate books against the unfolding crisis using its Realistic Disaster Scenarios framework (Insurance Business 2026). The Lloyd’s Market Association, through its CEO Sheila Cameron, maintained that insurance remained available and that at least forty vessel transits had occurred since March 1, with approximately one thousand vessels (half of them oil and gas tankers representing an aggregate hull value exceeding twenty-five billion dollars) still present in the Gulf with active London market coverage (Cameron 2026). Unfortunately, her formal assurances stood in stark contrast to the reality on the water, where fear, cost, and uncertainty had accomplished what Iranian naval forces alone had not.
The Joint War Committee (JWC), comprising Lloyd’s marine insurance syndicates and London market representatives, expanded the listed areas of enhanced risk to include Bahrain, Djibouti, Kuwait, Oman, and Qatar (IUMI 2026). Simultaneously, Lloyd’s entered discussions with the U.S. International Development Finance Corporation regarding President Trump’s directive to provide political risk insurance for Gulf shipping, a public-private model drawing on the precedent of the Ukraine grain corridor facility brokered by Marsh in 2023 (Washington Examiner 2026). The historical parallel most frequently invoked was the Iran-Iraq Tanker War of 1980–1988, during which approximately 540 vessels were attacked, insurance rates peaked at around five percent, and yet shipping through Hormuz never fully ceased because Lloyd’s maintained coverage with government-backed war risk facilities and military escorts under Operation Earnest Will (Navias and Hooton 1996; Insurance Business 2026).
Actuarially Sound Approaches to Reducing Premiums
The challenge in the class is not whether to provide coverage. It is how to structure that coverage so that premiums reflect actual risk rather than undifferentiated panic. Several established methodologies can achieve this while maintaining actuarial discipline.
The first and most fundamental is layered and syndicated risk structures. Rather than requiring a single insurer to bear the full exposure, underwriters can divide a policy into vertical layers (primary, excess, and catastrophe), each priced according to its probability of attachment. A lead syndicate might take the first fifty million dollars of exposure at a higher rate, while excess layers carry progressively lower premiums because the probability of loss reaching those levels is smaller. The aggregate premium across all layers is typically substantially lower than a single flat-rate policy because each participant prices only the slice of risk it actually bears. Lloyd’s syndicate structure has facilitated this approach for centuries (Strauss Center 2026).
Voyage-specific underwriting offers another critical tool. Instead of applying blanket territorial pricing to all Gulf exposure, underwriters can assess each transit on its specific characteristics: speed of passage, time of day, availability of naval escort, cargo type, flag state, and routing through swept channels. A vessel making a rapid escorted transit under a neutral flag presents a fundamentally different risk profile than a United States-flagged tanker conducting an extended port call at a loading terminal. Granular assessment allows premiums to reflect actual risk rather than worst-case assumptions applied uniformly (Marsh 2026; Argus Media 2026).
Convoy and escort premium credits create powerful economic incentives. During Operation Earnest Will, naval escorts materially reduced loss frequency, and insurers adjusted pricing accordingly (Navias and Hooton 1996). A similar framework could apply today, with the base rate for an unescorted transit set significantly higher than one for a confirmed military escort, thereby incentivizing coordination between shipowners and naval forces. Government-private hybrid facilities, already under discussion between Lloyd’s and the DFC, can further reduce costs by having the private market underwrite the primary layer at commercial rates while a sovereign backstop covers excess and catastrophe layers at lower rates reflecting governmental risk tolerance and capital advantages (Washington Examiner 2026). Parametric structures—which pay fixed amounts upon defined triggers such as a missile strike within a specified radius or a port closure exceeding a defined duration—eliminate adjustment costs and moral hazard, allowing tighter pricing. Deductible and co-insurance structures, in which the shipowner retains the first portion of risk, also reduce premiums while aligning incentives and ensuring that vessel operators maintain prudent precautions (Marsh 2026).
What would I do? Some Wartime Insurance Tradecraft for Conflict-Zone Risks
Beyond the standard toolkit, the most consistently profitable war risk underwriters deploy a set of less commonly discussed approaches that separate those who profit in hard markets from those who retreat to the sidelines. These methods do not appear in textbooks; they are forged through experience, institutional memory, and the particular culture of the Lloyd’s market.
It is counterintuitive, but it’s the right way to do it. Write into the fear, not away from it. When premiums spike to two or three percent of hull value, the market is pricing in a catastrophic loss scenario. If actual loss frequency turns out to be lower than the panic-driven assumption, say one in fifty transits results in a claim rather than one in ten, the underwriter who remained in the market earns extraordinary returns. The legendary Lloyd’s underwriter Stephen Catlin built his career on this principle: selective risk-taking at inflated prices during periods of maximum market dislocation. The key is analytical conviction and capital reserves sufficient to write selectively, not indiscriminately. During the 1980s Tanker War, insurance claims reached approximately two billion dollars over the conflict’s duration, half of which fell on the Lloyd’s market, yet rates at peak reached 7.5 percent for the most dangerous routes, generating substantial premium income for syndicates with the discipline to remain engaged (Strauss Center 2026; Navias and Hooton 1996).
Sophisticated syndicates think in terms of what I call a portfolio within a portfolio. They do not evaluate a single Hormuz transit in isolation but construct a balanced book in which Gulf war risk is one component alongside uncorrelated exposures, i.e., marine hull in benign waters, aviation, and political risk in stable zones. The real wartime insurance tradecraft is sizing Gulf exposure so that even a worst-case scenario involving multiple total losses remains absorbable within the broader book. The high-rate Gulf business subsidizes the return on the overall portfolio if it works correctly.
Put your intelligence collectors and OSINT folks to work! The most closely guarded advantage is asymmetric information. The best wartime insurance underwriters lean on private intelligence networks that extend well beyond commercial security firms, i.e., relationships with naval attachés, retired military intelligence officers, port agents in the Gulf, and informal channels with flag state administrations. An underwriter who knows, before the broader market, that naval escort patterns are shifting, that Iranian targeting doctrine is focusing on specific vessel types, or that back-channel diplomatic negotiations are progressing can price risk days or weeks ahead of competitors. This is not insider trading in the securities sense. It is legitimate intelligence gathering and wartime insurance tradecraft that functions identically.
Burning cost analysis provides a rigorous counterweight to market sentiment. When panic dominates, most underwriters price on headlines. The disciplined underwriter constructs a burning cost model, i.e., total historical claims divided by total premium base, for comparable conflicts. During the Tanker War, 540 vessels were attacked over eight years. The vast majority sustained repairable damage rather than total losses. Only twenty-three percent of attacked petroleum tankers were declared constructive total losses (Navias and Hooton 1996; O’Rourke 1988). The actual burning cost was often lower than headline rates suggested, creating opportunities for underwriters willing to trust the mathematics when everyone else trusted their gut.
Moral hazard engineering represents an imperative additional layer. The smartest policy structures are designed so that the insured’s behavior actively reduces the underwriter’s risk. I am saying, ‘substantial no-claims rebates for incident-free transits, mandatory AIS transponder protocols, required routing through swept channels, and compulsory use of vetted security teams’. Each condition simultaneously reduces loss probability and aligns the shipowner’s incentives with ours (insurer’s). The policy becomes a behavioral instrument, not merely a risk transfer mechanism.
Reinsurance arbitrage across global markets offers advantages. Lloyd’s underwriters access reinsurance capacity in London, Bermuda, Singapore, Zurich, and increasingly the Middle East. Different markets price the same underlying risk differently based on portfolio composition, regulatory capital requirements, and risk appetite cycles. A shrewd lead underwriter can structure a program in which the primary layer is written in London, the first excess reinsured in Bermuda at a different rate, and the catastrophe layer placed with a Middle Eastern sovereign wealth fund–backed reinsurer with a strategic interest in maintaining Gulf shipping. The arbitrage across these markets reduces overall program costs while preserving adequate protection.
Some of the most strategically minded underwriters employ what I would call a loss leader with option value. They deliberately write a small, carefully controlled book of Gulf war risk at rates they know are barely adequate. It isn’t necessarily to profit on that book directly, but rather demonstrate market presence, relationships, and real-time claims data that position them to dominate when conditions normalize. The information value of active participation in a crisis zone, i.e., understanding actual claims patterns, identifying which vessels are targeted and why, building loyalty with shipowners who remember who stood by them, has ENORMOUS long-term value. It is a strategic play that quarterly earnings–focused commercial insurers cannot easily replicate, but one that long-horizon Lloyd’s syndicates have used to build enduring competitive advantage.
Contractual triggers tied to geopolitical milestones transform the insurance contract from a static risk transfer into a dynamic hedge on geopolitical outcomes. Premium step-downs activated by a verified ceasefire, resumption of official Iranian oil exports, or documented reduction in Iranian Revolutionary Guard Corps naval activity create structures that are cheaper at inception and more responsive to evolving conditions. Conversely, escalation triggers provide automatic premium adjustments if hostilities intensify. This approach requires sophisticated legal drafting and clear trigger definitions, but it represents the frontier of underwriting innovation for conflict-zone exposures.
As a thirty-year veteran of the surety class of insurance, and of risk management more broadly, I’ll say this. The best underwriters treat uncertainty as a happy inventory, not the plague. When the market sees uninsurable risk, smart guys and gals see mispriced risk. The gap between those perceptions is where the healthy premiums are found. Hank Greenburg said, “If you want to make money in the insurance business, you have to go to where the risk is.” I will append my own maxim, “I will bond that the Atlantic Ocean will catch on fire if you will accept the terms.” The Strait of Hormuz crisis, for all its danger, is precisely the kind of risk that fits our shared perspective. It is the entire “gist” of my piece here, and unironically, it is also the sort of risk that Lloyd’s of London was built for. The underwriters who will emerge with the strongest franchises are those deploying clever wartime insurance tradcraft now, writing into the fear while the headlines scream “stay away”.
~ C. Constantin Poindexter Salcedo, MA, JD, CPCU, AFSB, ASLI, ARe, AINS, AIS, CPLP
Bibliography
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