AIG, Berkshire, and Insurers Back $40B Hormuz Guarantee—But Shipowners Still Won’t Budge

The U.S. has just doubled down on its effort to reopen the Strait of Hormuz, announcing a $40 billion reinsurance program. The move, unveiled Friday, adds six major U.S. insurers-including AIG and Berkshire Hathaway-to the existing facility, bringing the total capacity to $40 billion. The goal is clear: to provide the insurance guarantees that shipowners say they need to resume traffic through the vital waterway. Yet the mechanics of this event create a stark mispricing opportunity.

The strait itself is effectively closed. According to real-time trackers, ships transiting are at near-zero levels, with over 150 vessels stranded. This blockade, which has been in place since late February, is cutting off roughly a fifth of global oil and liquefied natural gas flows. The immediate market impact is severe, with Brent crude surging and tanker rates tripling. The U.S. is betting that a massive insurance backstop will restore confidence and break the deadlock.

The core question is whether this creates a mispricing. The program has seen no confirmed takers despite its expansion. That's the critical signal. The underlying security risk-the physical danger from missiles and drones-remains unaddressed. As industry sources note, shipowners appear more concerned about physical risk than financial coverage. The insurance gap may be partially closed, but the fundamental fear of transit persists. The $40 billion backstop is a powerful tool, but it's being offered for a market that has already decided to stay away.

The Mechanics: Why the Backstop May Not Work

The U.S. program assumes a simple equation: offer insurance, and ships will sail. The evidence shows that equation is broken. The real deterrent isn't the cost of a policy; it's the fear of what happens when a ship enters the strait.

War risk insurance premiums have indeed surged, but the cost is a secondary concern. Coverage now runs at about 5% of a ship's value, a rate that is roughly five times the pre-crisis level. For a major tanker, that's a $5 million premium for a single voyage. Yet, as one source noted, insuring vessels to sail through the Strait of Hormuz is still possible. The market for this coverage has returned, even at these extreme prices. The primary issue is safety, not price.

The data on physical risk is stark. The UK Maritime Trade Operations Center estimates that at least 20 ships have been involved in security incidents since March 1 in and around the Persian Gulf. This isn't a theoretical risk; it's an active threat environment with recent attacks. Shipowners are making a rational, risk-averse decision. They are not waiting for a cheaper insurance quote; they are waiting for a safer route.

This creates the core disconnect. The program's design assumes shipowners will use the federal guarantee to bridge the insurance gap. But they are largely waiting for a different solution: naval escorts or a demonstrable improvement in security conditions. As industry sources say, operators appear more concerned about physical risk than financial coverage. The absence of a U.S. escort program has reinforced this hesitation. Without a military presence to deter attacks, the insurance guarantee is a financial band-aid on a physical wound.

The bottom line is that the $40 billion backstop addresses a symptom, not the disease. It provides a mechanism for covering losses after an attack, but it does nothing to prevent the attack itself. Until the physical security risk is mitigated, the program will remain a powerful but unused tool.

The Valuation & Risk Setup

The $40 billion backstop creates a classic asymmetric bet. The U.S. is offering a massive government guarantee for a market that is currently frozen, with the strait closed and daily economic costs exceeding $4 billion. If the strait reopens, the program could be a massive, low-cost win for the insurers and the U.S. economy. If it remains closed, the cost is a $40 billion unused asset. The immediate risk/reward hinges on whether this guarantee can break the deadlock.

For the participating insurers-Chubb, AIG, Berkshire Hathaway, and the others-the setup is a new, concentrated source of reinsurance business. They are being asked to underwrite geopolitical risk on a scale rarely seen. The upside is clear: they earn fees and premiums for a $40 billion facility. The downside is a high concentration of risk. Their balance sheets are now exposed to a single, unresolved conflict zone. The program offers a steady revenue stream, but it is entirely contingent on a political and military resolution that is not in sight.

The key risk is that this becomes a costly, unused asset. The evidence shows the facility has no confirmed takers despite its expansion. Shipowners are waiting for a safer route, not a cheaper policy. Without naval escorts or a demonstrable improvement in security, the insurance guarantee is a financial band-aid. The $40 billion is a sunk cost if the strait stays closed, which is the current reality. The program's value is purely contingent on a future reopening, making it a speculative asset today.

The bottom line is a tactical mispricing. The market is pricing in a closed strait, but the U.S. is offering a $40 billion option to reopen it. The insurers are the option sellers, collecting premiums for a risk they may never have to pay. The setup is a high-stakes gamble on diplomacy, with the insurers betting that the guarantee will eventually be used, while the broader market prices in continued disruption.

Catalysts & What to Watch

The mispricing thesis hinges on a single, unresolved question: will the $40 billion backstop actually be used? The near-term catalysts are clear. Watch for the first confirmed taker of the DFC-backed insurance. That event would signal a tangible shift in risk appetite and prove the program is working. Until then, the absence of takers, despite the expanded capacity, suggests the market is still waiting for a different solution.

The primary catalyst for reopening the strait itself is not financial, but military and diplomatic. Monitor the status of naval escorts and any de-escalation in Iran-U.S. tensions. The evidence shows shipowners are more concerned about physical risk than financial coverage, and the absence of a U.S. escort program has reinforced their hesitation. A credible naval presence or a breakthrough in talks would directly address the core fear, making the insurance guarantee more relevant.

Finally, track the daily economic cost metric. The estimated cost of the blockade exceeds $4 billion per day. A sustained figure at this level supports the backstop's potential value by highlighting the stakes. If the cost begins to fall, it could signal a resolution and reduce the perceived need for the federal guarantee. Conversely, a spike would underscore the urgency and the program's potential payoff.

The setup is a race between these catalysts. The insurers are sitting on a $40 billion option, but its value depends entirely on a political and military breakthrough that remains uncertain.