Domestic Insurers Will Cover 10 Vessels Waiting in the Strait of Hormuz
The government is partnering with domestic non-life insurance companies to formally launch a war insurance support system for small and mid-sized shipping companies facing increased burdens in transiting the Strait of Hormuz due to deteriorating conditions in the Middle East. Pictured is FSC Chairman Lee Eok-won. (Provided by the Financial Services Commission)
The government is partnering with domestic non-life insurance companies to formally launch a war insurance support system aimed at helping small and mid-sized shipping companies that have faced mounting burdens from transiting the Strait of Hormuz amid deteriorating conditions in the Middle East. The initiative is intended to lower operational costs for shipping companies and secure logistics stability by moving away from a structure that depended on overseas reinsurance companies, and instead having domestic insurers directly share the risk.
On May 21, the Financial Services Commission (FSC) held a meeting chaired by FSC Chairman Lee Eok-won, attended by representatives from the shipping industry, policy finance institutions, and the insurance sector, and finalized a set of shipping industry support measures. The centerpiece of the package is the provision of war insurance for 10 vessels belonging to small and mid-sized domestic shipping companies currently waiting in the Strait of Hormuz. Ten domestic non-life insurance companies, including Hyundai Marine & Fire Insurance and Samsung Fire & Marine Insurance, plan to supply transit-related coverage by distributing risk through a co-underwriting arrangement.
Until now, marine war risk insurance had been almost entirely dominated by overseas reinsurance markets, leaving smaller shipping companies either unable to obtain coverage or compelled to pay excessive premiums. Analysts note that the operational burden on domestic shipping companies has been compounded by growing volatility in the international reinsurance market as tensions in the Middle East have escalated in recent months. Under the co-underwriting structure, eligible vessels will receive stable transit coverage through domestic insurers without involvement from foreign reinsurers.
Premiums will be set at the lowest rate currently applied to domestic shipping companies, and a refund mechanism will be introduced whereby any difference will be reimbursed if a lower rate is identified after the contract is signed. The total support package has been set at approximately 300 billion won ($214.3 million). The government is also considering maintaining war risk coverage within the same funding envelope even after transit, should the situation in the Middle East persist, while planning to expand the scope of support through future legislative amendments to include major vessels of significant national economic importance.
The financial support framework is also set to be strengthened. The vessel fund operated by the Korea Asset Management Corporation (KAMCO) will be increased to approximately 250 billion won ($178.6 million) per year starting in 2026, with priority given to shipping companies affected by conditions in the Middle East. In addition, to encourage the adoption of eco-friendly vessels, the Loan-to-Value ratio (LTV) for vessel collateral will be raised to 70% for second-hand ships and 80% for newly built ships, lowering the threshold for financing.
Korea Development Bank (KDB) is also supporting the transition of small and mid-sized shipping companies to eco-friendly and smart vessels through the $1.4 billion KDB SOS Fund. FSC Chairman Lee Eok-won emphasized that the shipping industry is a critical backbone sector responsible for more than 99% of South Korea’s import and export cargo volume, and stated that the government would spare no effort to ensure that practical support reaches companies at the time they need it most.
Kim Eun-jin
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