Bottomry

An ancient maritime loan secured on a ship, repayable only if the voyage succeeded, an early way of transferring sea risk.

Overview

Under bottomry, a shipowner or merchant borrowed money to finance a voyage, pledging the ship or cargo as security. If the ship was lost, the debt was cancelled; if it arrived safely, the lender received principal plus a high premium reflecting the risk. Such loans were common in classical Athens and the Roman world, and versions survived in medieval Mediterranean trade. Because the interest effectively bundled a loan with a risk premium, the arrangement is regarded as a forerunner of marine insurance. Church restrictions on usury in the 13th century encouraged merchants to separate the risk element into stand alone premium contracts, which became the earliest true insurance policies in Italian city states.