Trump Administration Provides "Sovereign Backstop" Reinsurance Facility for Persian Gulf Maritime Shipping

On Mar. 6th, President Donald J. Trump issued, “effective immediately”, a directive ordering the U.S. International Development Finance Corporation (“DFC”) to act as a federal “sovereign backstop” for qualified private insurance companies providing Hull & Machinery and Cargo coverage to shipping companies operating in the Persian Gulf. The backstop will take the form of a $20 billion reinsurance facility (“Reinsurance Facility”) available to qualified private insurance companies, as well as shipping lines. While the official list of qualified insurers has not yet been issued, Chubb, AIG, Liberty Mutual, and, significantly, Lloyd’s of London acknowledged active participation in negotiations with the DFC. While the facility’s core is reinsurance of Hull & Machinery and Cargo risks, the DFC has explicitly stated that it will also cover war risk and provide support directly to the maritime industry in the Persian Gulf. The stated purpose of the Reinsurance Facility is to reduce war risk premiums for shipping through the Strait of Hormuz and ensure the free flow of oil, liquified natural gas (“LNG”), and other energy commodities through the region.

• Private Insurers (as Partners): The Reinsurance Facility is designed to support “key maritime insurance providers.” By taking on the “first-loss” or most extreme risks, the U.S. government allows private firms to keep writing policies they otherwise would have abandoned.
• Shipping Lines and Charter: The Reinsurance Facility authorizes political risk insurance and guarantees directly to “all shipping lines” transiting the Strait of Hormuz.
• Energy Producers and Consumers: While open to all maritime trade, the program prioritizes energy shipments. This includes tankers carrying crude oil, gasoline, LNG, and jet fuel, ensuring that refineries do not run dry and that global energy prices stabilize.
• American and Allied Businesses: The DFC states its primary goal is to support U.S. and allied interests operating in the Middle East, offering a “foundation for a new era of lasting peace and prosperity” by removing the financial barriers to trade.

The U.S. Navy will provide escorts “if necessary” to any ship to ensure the “free flow of energy to the world” following threats from Iran to block the strategic waterway. Several London publications speculated that if the DFC’s $20 billion facility becomes a permanent fixture for “systemic stabilization,” it could shift the center of maritime finance from London to Washington.

Clark Hill’s Insurance & Reinsurance practice group, in conjunction with our International Trade team and Clark Hill Public Strategies, provides advice on all aspects of the U.S. insurance industry. Reach out to our professionals to effectively engage the DFC on this vital issue.