End to war risk cover unlikely to hurt local insurers

KARACHI: The cancellation of war-risk coverage for ships by foreign insurance companies in the Gulf region is expected to have only a “limited direct financial impact” on insurance companies in the country, according to experts in business and industry.

However, it may create operational and business challenges for the marine insurance sector, they said.

Industry sources indicate that at a time when reinsurers and retakaful operators are dictating terms, local insurers are required to comply with these conditions under reinsurance treaties signed by them.

The Insurance Association of Pak­is­t­­an (IAP) is expected to play a coordinating role in tackling the situation. The association generally works closely with the Securities and Exchange Com­mission of Pakistan (SECP) to monitor industry exposure, engage with international reinsurers, and ensure financial stability within the sector.

Mohammad Raza, Non-Life Com­mit­tee and Property Committee member of IAP, said consultations were underway to reassess underwriting policies, review reinsurance arrangements, and ensure insurers maintain adequate solvency levels.

If the conflict prolongs, the government may consider policy support mechanisms to safeguard maritime trade. In several countries, governments have intervened during geopolitical crises by establishing sovereign war-risk insurance guarantees or maritime insurance pools, he said.

Pakistan could explore similar mechanisms by setting up a reinsurance company that could provide temporary support for essential maritime trade and energy shipments, Mohammad Raza suggested.

Saquib Zeeshan, the CEO of Pak-Qatar General Takaful, said the impact of war risk cancellation for vessels may remain limited. If the situation, however, continues to escalate over a longer period, it is likely to have an adverse effect.

Premium volumes could decline dras­­tically due to reduced shipping activity and restricted coverage, while the possibility of claims would still persist. This imbalance between declining premium inflows and the continued risk of claims could place significant pressure on ins­urers operating in the marine ins­­urance segment, Saquib Zeeshan added.

Most marine risks, including war risks, are largely transferred to international reinsurers and retakaful operators. Pakistani insurers typically retain only a small portion of the risk while ceding the majority to global markets.

As a result, the withdrawal of war-risk coverage results in reduced availability of coverage rather than large claim payouts, he said.

The duration of cancellation remains uncertain. War-risk coverage may be reinstated within days or weeks if tensions ease, but if the conflict persists, the suspension could continue for an extended period.

Pakistani insurance companies largely rely on international reinsurance and retakaful providers based in major global insurance like London, Europe and parts of Asia.

Following the escalation of geopolitical tensions in the region, most reinsurers have issued notices invoking the Ins­­titute War Cancellation Clause for cargo.

According to industry sources, both conventional and takaful insurers in Pakistan have received formal cancellation notices from their respective reinsurers, typically providing the standard seven-day notice period before the withdrawal of war-risk coverage becomes effective.

This means insurers are currently bound to follow the terms imposed by their reinsurers, as war-risk capacity is primarily controlled by international reinsurance markets.

According to industry estimates, the marine insurance portfolio in Pakistan represents 10-13 per cent of the overall insurance industry premium.

The annual premium volume for marine insurance is estimated to be around Rs25 billion. Out of this, the insurance industry collectively settles marine insurance claims of approximately Rs5bn annually, depending on trade volumes, cargo losses, and maritime accidents.

Saquib Zeeshan, the Pak-Qatar General Takaful CEO, said marine cargo and hull insurance policies in Pakistan are subject to the Institute Cargo Clauses (ICC), a standardised set of policy wordings developed by the International Underwriting Associa­tion of London. These clauses define the scope of coverage, insured perils, and exclusions applicable to goods in transit.

Risks arising from war and civil disturbances are covered through additional extensions such as the Institute War Clauses (Cargo) and Institute Strikes Clauses (Cargo). These provide protection against extraordinary risks like capture, seizure, arrest, restraint, detention, and other hostile acts.

However, marine policies also incorporate the Institute War Cancellation Clause (Cargo), which allows insurers or reinsurers to terminate war-risk coverage. Under this clause, cancellation becomes effective after the expiry of a seven-day notice from midnight on the day the cancellation notice is issued.

According to Mr Saquib, Pakistani insurers rely heavily on international reinsurance and retakaful markets. When these reinsurers withdraw or restrict war-risk capacity, domestic insurers must also suspend or cancel such coverage extensions.

Published in Dawn, March 8th, 2026

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