A prolonged Middle East conflict is emerging as the most likely near-term scenario shaping terrorism and political violence reinsurance renewals, with the market already settling into a new equilibrium, according to WTW.
Fergus Critchley, Global Head of Terrorism & Political Violence at WTW, speaking ahead of the April 1 renewals, said that under the more probable scenario of a sustained conflict, the market appears to have reached a new operating baseline.
“Insurers are still offering solutions across all major lines, but with reduced line sizes, tighter terms, and higher rates than before,” he explained.
Critchley added, “There are some Treaty programs renewing at April 1, and we wait to see if there are any significant restrictions, though this is not currently predicted, but because insurers are immediately writing smaller lines, more risk is being retained net, which should help limit pressure on excess-of-loss structures for the main treaty renewal date of 1/1.”
He noted that in a de-escalation scenario, insurer appetite would likely rebound relatively quickly, with the current shock-pricing environment easing, though not returning to pre-conflict levels.
“Coverage breadth, especially around contingent exposures such as supply chain risks, is likely to recover more slowly as insurers remain cautious,” he said.
However, a deterioration in the conflict, either through geographic expansion or increased intensity, would carry the most significant implications for the market.
“In that case, we could see stop-orders on underwriting new exposure, heightened referral requirements, and a broader impact beyond MENA into the global marketplace,” Critchley explained.
He concluded, “For now, capacity outside the region remains largely intact; pre-conflict war capacity of ~$3.5 billion and terrorism capacity of ~$5 billion has only materially contracted within MENA.
“Importantly, unlike the immediate reaction during the start of the Ukraine war, reinsurers have not signalled any intention to impose blanket regional exclusions.
“This means insurers will continue to manage exposures through aggregate controls rather than broad-based treaty restrictions, which is a constructive sign for clients renewing this cycle.”
In related developments, earlier commentary from executives at Howden Re suggests that a potential closure of the Strait of Hormuz amid escalating tensions could act as a significant stress test for the re/insurance sector.
Even so, the market is expected to remain well capitalised and engaged, with any response likely to focus on targeted repricing, tighter terms, and increased scrutiny of aggregation and programme structure, particularly in the context of mid-year renewals.
