Assessing insurers’ vulnerability to an adverse scenario in which the Strait of Hormuz remains effectively closed until June 2026, Fitch Ratings has warned that a spike in inflation or supply chain disruption could drive up claims costs, putting particular pressure on the underwriting profitability of Gulf Cooperation Council (GCC) insurers.
Fitch observed that GCC insurers are predominantly non-life or composite carriers, with portfolios focused on motor and medical lines and limited near-term exposure to direct war-related insurance risks.
“Property and casualty risks are typically a smaller proportion of the overall book, exclude war risk, and are generally heavily reinsured,” the rating agency added.
However, in a downside scenario, Fitch noted that GCC insurers with limited rating headroom could face heightened negative rating pressure stemming from prevailing macroeconomic conditions.
“A spike in inflation or supply chain disruption could affect claims costs, putting pressure on underwriting profitability. Asset portfolios are generally conservative, with a large proportion of cash in investment portfolios. However, some have significant exposure to local equities and real estate, so a more protracted and severe conflict could thus erode valuations and affect investment returns,” the rating agency said.
Outside the GCC, Fitch stated that direct losses from the conflict are likely to remain concentrated in certain specialty lines, including marine, aviation, political violence, energy and trade credit.
The potential for correlated losses could increase earnings volatility and place pressure on capital positions if the conflict becomes prolonged or triggers a broader systemic shock to global economies and financial markets.
Nevertheless, non-life insurers and reinsurers are expected to retain sufficient headroom to absorb indirect pressures arising from potential increases in claims costs.
The rating agency concluded, “Weaker growth would primarily affect consumer-related lines, and there is a risk, should inflation rise very steeply and rapidly, that insurers could fail to adequately recognise pricing trends, which would lead to tighter earnings.
“We expect a limited direct impact on the global life insurance market. Inflationary pressures on the sector are modest and the largest effects could come from interest rate movements or foreign-exchange volatility.
“Fitch believes the global insurance industry’s capital levels are generally fairly strong and able to withstand a period of underwriting losses without rating downgrades or Outlook revisions.”
