A new AM Best report has warned that if the ongoing Middle East conflict continues or escalates, reinsurers may need to reassess their risk exposure, with renewals becoming a critical inflection point for the sector in regional markets.
According to the rating agency, this could lead to higher pricing on commercial risks, and changes to terms and conditions, exclusions and event limits.
“Moreover, the commission rates on certain classes may be adjusted, and there may be greater pressure for the local market to retain more,” AM Best added.
The firm’s new report suggested that this dynamic could pose challenges for a sector “heavily reliant” on reinsurance.
AM Best noted that, although risk-adjusted capitalisation remains robust for rated insurers in the region, the absolute capital base is limited for most participants.
“Their ability to increase retention is likely to be modest at best, and reinsurance capacity and expertise will still be required for the market to function effectively,” the rating agency concluded.
Earlier today, AM Best provided further details from the same report, stating that losses to the global reinsurance market from the ongoing Middle East conflict have so far been limited and would typically take the form of single large losses.
The agency highlighted that war risks are commonly excluded from policies but are offered as riders on certain risks, and that Iranian risks are largely uninsured by global reinsurers due to sanctions, meaning damage to infrastructure will have little impact on loss experience.
AM Best’s report also addressed the cyber insurance sector, noting that many insurers have been excluding war or state-sponsored attacks.
However, some products that cover war risks could be affected in the medium term if cyber risks escalate due to state-sponsored actors.
The agency underscored that, while the US remains the world’s leading cyber insurance market, it expects international markets to steadily capture a larger share of global premiums in the coming years.
Events such as the ongoing Middle East conflict could act as a catalyst for this growth if cyber attacks become a weapon of choice in the region.
AM Best added that state-sponsored cyber actors are likely to increase their activities amid geopolitical tensions, with the impact and success of such attacks depending heavily on the cyber defences and cyber hygiene of the insureds.
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