Financial Services Commission to Support Shipping Industry Hit by Middle East Crisis... Easing Insurance Premiums and Providing Liquidity Support

Encouraging Lower Reinsurance Commissions
Pushing for Grace Periods on Debt Repayment

The Financial Services Commission is preparing measures to ease insurance premium burdens and support liquidity for the shipping industry.

According to the financial sector on May 3, the Financial Services Commission plans to hold the 4th Middle East Crisis Affected Industries and Financial Sector Meeting, chaired by Chairman Lee Eokwon, as early as mid-May to discuss concrete support measures for the shipping industry. Previously, the commission designated the petrochemical, construction, and steel industries as sectors affected by the Middle East crisis and has already introduced support measures for them.

The government has begun coordinating efforts to enable domestic private reinsurers, including Korean Re, to supply insurance products necessary for vessel passage at reasonable prices, as insurance premiums have risen sharply due to the situation in the Middle East. Currently, vessels stranded in the Strait of Hormuz are covered for docking insurance, but it is difficult to obtain passage insurance required for transiting the strait. Even if shipowners consider alternative routes, related data is insufficient, limiting available insurance products and resulting in very high premiums.

Generally, due to the high risks of marine insurance, multiple insurers jointly underwrite contracts, and then transfer them to reinsurers and retrocessionaires to disperse the risk. The Financial Services Commission is reportedly pushing for domestic reinsurers to lower the commissions they charge to primary insurers, ultimately reducing the insurance premiums shipping companies must pay.

This crisis has also sparked discussions about the possible introduction of a "national reinsurance" system. This would involve the government injecting public funds to share a portion of risks and establish a public reinsurance framework in crisis situations such as war, when insurance premiums soar abruptly.

In addition, the Financial Services Commission is reportedly reviewing liquidity support measures specifically for the shipping industry, separate from maritime policy initiatives. Given the nature of the industry, with a high proportion of dollar-denominated revenue, rising freight rates and exchange rates are positive for profits. However, increased insurance surcharges, higher risk allowances for crew, and surging fuel costs due to rising oil prices have significantly increased cost burdens. Furthermore, with some shippers abandoning shipments due to higher freight rates, the business environment is worsening, and concerns about a liquidity crunch are mounting.

Accordingly, policy options are being considered, including a grace period for the repayment of existing debts by creditor banks such as Korea Development Bank, along with additional financial support measures.

Previously, the Ministry of Oceans and Fisheries, together with Korea Ocean Business Corporation, rolled out a liquidity support package at the end of last month, which includes unsecured credit guarantees for shipping companies and the swift provision of emergency management stabilization funds.

This content was produced with the assistance of AI translation services.