Over the past several years deploying capital in the insurance capital markets, I’ve found that most coverage rarely goes beyond surface-level headlines, outcomes, and broad narratives. 

This newsletter takes a different approach - a perspective from inside the market - the pricing cycles, the capital flows, what’s moving markets, and what’s behind the headlines.

You've probably seen some version of the following narrative over the past month. Insurance was pulled on tankers transiting the Strait of Hormuz. International shipping seized up. The Trump administration stepped in with a $20 billion government backstop to get oil moving again. The insurance market failed, and Washington had to fix it.

That narrative is wrong. Here's what actually happened.

Marine insurance has several layers. The one that made the news was a narrow piece: reinsurers backing liability extensions for shipowners cancelled cover at 72 hours' notice - a standard contractual right triggered when a conflict involves a major power like the US. The insurers had to notify clients, and the media reported it as war risk cover being pulled entirely.

It wasn't. What was cancelled was one layer of reinsurance - not the primary hull war market, which stayed open throughout. The same thing happened after Russia invaded Ukraine in 2022 and when Houthi attacks escalated in the Red Sea in 2024. Each time, replacement cover was available before the old contracts expired.

Lloyd’s is the global centre for marine war risk underwriting. On March 3, the Joint War Committee - the body that designates areas of enhanced risk for marine war underwriters - classified the Persian Gulf as a war risk zone. Premiums moved from roughly 0.15–0.25% of hull value to anywhere between 1% and 7.5%, depending on the day, the vessel, and the route¹. On a supertanker, that's somewhere between $1 million and $10 million per voyage.

A survey conducted in the week after hostilities began showed 88% of Lloyd's marine war underwriters maintained an appetite to write hull war risks, and over 90% for cargo². The cover was available. The price went up because the risk went up. That's the market functioning correctly.

Safety, not insurance. By mid-March there had been over 20 confirmed attacks on commercial vessels, at least 7 crew fatalities, and roughly 20,000 sailors stranded on some 2,000 ships in the Gulf. Commercial traffic through the Strait dropped by over 90%, and briefly fell to zero on March 14³. Ship owners and masters assessed the physical risk to crew and vessel as too high to transit, regardless of whether insurance was available.

The Trump administration announced a $20bn government-backed reinsurance facility through the Development Finance Corporation, with Chubb as lead underwriter, to provide cheap war risk cover for vessels transiting the Gulf. The stated goal was to break the shipping paralysis and get oil flowing again.

There was one problem. The expertise required to underwrite and price marine war risk on this scale sits in London. While the DFC facility was being structured, Lloyd’s was already online and actively quoting.

The Lloyd’s market didn't fail - it did exactly what it's done since the 17th century: it assessed a new risk, priced it, and offered cover. The US government's response was not a replacement for Lloyd's. It was a recognition that for complex global risk, London remains the market of first resort.

The Strait of Hormuz episode is a useful case study in how the insurance market behaves under stress, and why the return profile looks the way it does.

Pricing power is immediate. When risk increases, premiums don't lag. They reprice in real time, sometimes by orders of magnitude. A 50x increase per transit within days. That responsiveness is what separates insurance returns from most other yield-generating asset classes.

The Lloyd’s market is structurally indispensable. It has operated continuously for over 300 years, absorbing the San Francisco earthquake, two world wars, the Piper Alpha disaster, and the World Trade Center attacks, emerging each time with stronger governance and deeper capital. The US government's response to this crisis confirmed what the market has known for decades: there is no alternative venue with the depth of expertise to price and absorb complex global risk at this scale.

Insurance is a pricing business, not a trading business. The economics of a policy are fixed when it's written. New information shows up in the price of the next contract, not the last one. When war risk premiums surged in the Strait, existing exposure was unchanged. Same event, different mechanism.

Crises are a feature, not a bug. In most asset classes, periods of stress produce losses. In insurance, they produce losses initially, but also the conditions for potential outsized future returns. As capacity exits and uncertainty rises, the underwriters who remain can charge materially higher premiums for the same underlying exposure. The event is the catalyst, but the underwriting cycle is where the money is made.

Lloyd's of London is the largest component of the London insurance market. They published full year results last week, reporting a third consecutive year of return on capital above 20%. CEO Patrick Tiernan described Lloyd's as "one of the world's best-kept financial secrets hiding in plain sight," noting that syndicates benefit from a significant capital advantage over insurers operating outside the market.

That push for capital efficiency is exactly what has drawn private equity into the life and annuity market in the US. The goal is the same. The approach is completely different. And the risk profile for policyholders, pensioners, and the broader financial system is very different too.

In our next issue I'll be looking at what may be unfolding behind the scenes and why it matters to anyone with a life insurance policy, an annuity, or a pension.

Until then.

Charlie Evans, CAIA
Chief Investment Officer, Zephyros Investments

¹https://www.stephensonharwood.com/insights/strait-of-hormuz-update-heightened-war-risks-and-implications-for-shipping/
2https://lmalloyds.com/safety-concerns-not-insurance-availability-driving-reduced-vessel-traffic-in-the-strait-of-hormuz/
³https://www.cnbc.com/2026/03/18/hormuz-bottleneck-vessel-tanker-tracker-shipping-strait-of-hormuz.html