When the gasfields in Iran and Qatar were bombed on Wednesday, markets gyrated wildly as investors confronted the long-term threats to energy supplies — and growth. Inside the maritime insurance world, however, officials blanched for another reason: such attacks show that the boundaries of this war are expanding in unpredictable ways.
In financial jargon, insurers are now grappling with rising “tail risks”, or the danger that low-probability but highly damaging events might occur. Thus the questions hanging over the Strait of Hormuz: how can anyone now calculate these risks? Is it the job of governments? Or of the private sector?
And while the primary concern remains the human dangers arising from any Iranian attack on ships, for insurers there is an added financial twist: the EU implemented the Solvency II regime a decade ago, which sharply raised the level of capital reserves that insurance companies need to retain to protect against possible losses.