Protection and indemnity clubs are initiating cancellation notices for fixed premium business, which extends to war risk coverage in the Red Sea danger area, effective from 20 February after reinsurers pulled their support in the region.
Skuld is the first to notify fixed premium clients of the cancellation in the southern Red Sea, Gulf of Aden and Indian Ocean but is likely to be followed by other P&I mutuals with fixed premium business lines.
This cancellation will apply to all, non-mutual, fixed premium businesses including charterers, offshore, yachts and all additional or ancillary covers.
Several notices of cancellations have been issued in the market for the affected region in other sectors, including cargo and hull war risk.
Skuld is hopeful of coming up with a solution shortly with alternative reinsurance providers, which will allow cover to continue.
“We anticipate being able to provide some element of ‘buy-back’ cover for the cancelled element of cover, and we expect this to be advised to our clients and the wider market in the coming few days,” Skuld chief executive Stale Hansen told TradeWinds.
Mutual P&I cover, and the $500m excess of loss cover in the International Group of P&I Clubs reinsurance scheme, remains unaffected.
Most reinsurers renewed their annual contracts with direct commercial marine insurers at the 1 January renewal without any such Red Sea exclusion clauses being introduced.
Most war risk insurers have been able to carry on as usual in the knowledge that part of their own risk is covered by their reinsurers for the current year at least.
However, it may be a different story for P&I clubs, which renew reinsurance contracts for fixed premium and mutual business on 20 February.
The change in the reinsurance market since the start of this year has seen an escalation of attacks on shipping in the southern Red Sea and the Gulf of Aden by Houthi rebels.
In addition, there has been an increase in suspected piracy attacks on shipping in the Indian Ocean.
The decision on the Red Sea by some reinsurers, most of which will be based in the London market, to pull back cover mirrors the action they took against Russian, Ukraine and Belarus risks at the 1 January 2023 renewal.
That was prompted by the impact on shipping of Ukraine’s war with Russia.
That left underwriters with no option but to take the full risk of covering those areas on their own books.