For two months, one of the most closely watched insurance programme in the world has sat completely idle. The US government's $40 billion maritime reinsurance facility — assembled at presidential direction, backed by some of America's largest insurers, and announced as the mechanism that would reopen the Strait of Hormuz to global energy trade — has not placed a single dollar of cover.
The reason, according to the brokers, underwriters and risk professionals closest to the market, is straightforward: the programme was built on a false premise. Washington concluded that a collapse in insurance availability was why commercial shipping had stopped transiting the world's most critical energy chokepoint. The market, those professionals say, never collapsed. What it did was price a war honestly — and that price told shipowners something no government facility could change.
When the United States and Israel launched coordinated strikes on Iranian military infrastructure on 28 February 2026, reports spread rapidly through wire agencies and the international business press that marine war risk insurers had cancelled cover for vessels in the Persian Gulf — that the market had, at the moment of greatest need, walked away.
Within days, President Trump had ordered the US Development Finance Corporation to deploy political risk reinsurance for Gulf shipping, with Chubb installed as lead underwriter and a syndicate that eventually grew to include AIG, Berkshire Hathaway, Travelers, Liberty Mutual and Starr. The facility was expanded to $40 billion. It was framed as the solution to an insurance market failure.
The Lloyd's Market Association waited three weeks before issuing a formal correction. "Three weeks since the start of the hostilities in the Middle East, we are still seeing reports that suggest insurance coverage is cancelled or unaffordable and that this is the reason that vessels are not transiting the Strait of Hormuz," it said. "This is not accurate." An LMA survey found that 88% of Lloyd's marine war market participants retained appetite to write hull war risks, with over 90% continuing to offer cargo cover.
The misconception had a direct policy consequence at the highest level. By the time the LMA issued its statement, the DFC programme was already in place — designed to address a market withdrawal that had not, in the way it was understood, actually occurred.
The distinction between cancellation and repricing is not semantic. It is the difference between a market that has failed and a market that is functioning exactly as designed.
As Insurance Business Australia has reported in its coverage of how the war reshaped broker practice across the London and international markets, Howden Re data showed war risk pricing on Hormuz transits climbing from roughly 0.10–0.125% of vessel value before the conflict to around 2–3% by March — elevated, but available. Capacity remained in the market. The brokers described their role as having shifted from placing cover to advising on rerouting, layered capacity and the realities of volatile insurer appetite. That is a different kind of market stress. It is not a market withdrawal.
At around 3% of hull value, insuring a $100 million tanker costs roughly $3 million in war risk premium per voyage. Lloyd's List intelligence indicated quotes of between $10 million and $14 million for a very large crude carrier with US nexus transiting the strait. Those numbers did not represent an unavailable market. They represented a market pricing a genuine, lethal risk — and telling shipowners the answer they did not want to hear.
The DFC programme contains a structural requirement that exposes its underlying logic: cover is only available to ships transiting under US naval escort. The naval convoy has not been established. Two vessels were escorted through the strait in early May under the short-lived "Project Freedom" effort, but no programme has materialised at scale. A Chubb spokesperson confirmed the position plainly: "The DFC programme's purpose is to insure ships while transiting under naval escort, and there has been no escort."
The broking community has been saying the same thing in different words since March. Peter Beard, manager of technical services at Insurance Advisernet, told the National Insurance Brokers Association of Australia that the crisis is already evident in Australian client businesses — in diesel costs, freight rates, input prices and construction budgets — and is testing the adequacy of programmes placed under earlier assumptions. But the reason for that crisis is not a missing reinsurance facility in Washington. It is a war.
"No shipowner wants to put either his asset, and more importantly his crew, in danger. They'll look for every alternative other than do that," David Smith, head of marine at broker McGill and Partners told AAP. That calculus does not change with the addition of a government reinsurer — however well capitalised — on the other side of the policy.
The programme's zero uptake raises a harder question for the market: what does the Hormuz crisis mean for war risk pricing and capacity long after any ceasefire? The answer emerging from underwriters is that the damage to actuarial models will outlast the conflict itself.
As Insurance Business reported in its analysis of whether a ceasefire can reopen the insurance market, war risk premiums in the Red Sea, which surged during the Houthi crisis of 2023–25, remained substantially elevated even after attacks significantly declined. The structural reasons are embedded in how the market works: when conflict breaks out, coverage must be renegotiated individually for each vessel, on a voyage-by-voyage basis, with fresh actuarial assessments made by each layer of the reinsurance chain. Capacity withdrawn at the treaty reinsurance level must be reinstated through negotiation, not by political announcement.
The Hormuz crisis demonstrated something the Red Sea had not: that the world's single most important energy chokepoint could be effectively closed. That knowledge is now priced into every future actuarial model. For Australian businesses dependent on Gulf energy flows — and the brokers advising them on the coverage gaps the crisis has exposed across marine, property, transport and agriculture lines — the elevated risk premium is not a temporary spike. It is the new baseline.
The DFC, for its part, maintains the facility stands ready. Whether ships will ever use it depends not on the programme's terms, but on whether captains judge it safe to sail. That is a question no insurer — public or private — can answer for them.
