War risk underwriters are holding tight on Black Sea rates in the face of escalating threats towards commercial shipping issued by Moscow and Kyiv.

Russian attacks on the port of Odesa and grain hangers at the Danube ports of Izmail and Reni have added to the heightened tensions in the region around shipping.

Rates this week remained at an unusually high level for the war risk market, between 0.95% and 1% of insured hull values for ships trading to Russian ports through the Black Sea.

Priced at 0.1% were trades to other Russian ports away from the conflict zone but still regarded as additional premium areas, such as east coast ports facing the Sea of Japan.

“As long as there is no direct attack on shipping, rates will remain as they are now,” one broker said.

He added that it is unlikely rates could go any higher.

“If a ship is attacked, it is more likely we would see underwriters withdraw cover altogether than raise rates further,” he said.

Some war risk underwriters have stopped writing new cover for ships trading to Danube ports following the recent attacks.

The impact of the current high rates is being softened by ships limiting trips to the high-risk areas to a three-day turnaround rather than taking the usual full seven-day war risk cover terms.

The collapse of the Black Sea Grain Initiative last week led to warring Ukraine and Russian governments naming shipping as a potential target.

Moscow said any commercial ship heading towards Ukrainian ports would be regarded as “potential carriers of military cargo”.

It has started to inspect vessels heading through the Kerch Strait to the Sea of Azov after it said it had found a ship it suspected of delivering explosives to the territory of Ukraine.

In response, Kyiv has said it could attack vessels approaching Russia’s Black Sea ports.

War risk underwriters have seen a significant spike in income over the past year in response to tensions over shipping in the Black Sea region.

However, they have also faced significant additional costs and risk exposure. Since the start of the year, reinsurers announced a Russian exclusion clause that forced direct underwriters to write business to the country on a net-line basis, which means they are taking on the full financial risk.

The war risk market has had to pay out on the full hull and cargo value for dozens of ships that have remained trapped at Ukrainian ports since the war broke out.

In its recent market report, specialist insurance and reinsurance broker Miller estimated that the cost of those claims is in the region of $400m.

The broker said the Russian exclusion introduced by reinsurers has reduced capacity and raised rates for the wider war risk market.

“There is still more than adequate capacity to cover all the vessels in the world fleet but, with reduced capacity, the laws of supply and demand have dictated higher premiums for war risks than might otherwise have been the case,” Miller said.

“Those insurers who have continued to maintain high levels of war risk premiums have, so far, been rewarded due to a continued absence of material loss, as the fear of loss exceeds the reality.”

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