The ongoing Iran conflict is expected to most directly affect the London market and global specialty insurers, given their direct exposure to marine/aviation war, political violence, trade credit and energy lines, according to credit ratings agency, Fitch Ratings.
Analysts at Fitch have warned that a prolonged conflict in the Middle East could indirectly affect insurers through loss cost inflation, falling asset values, and rising defaults. However, if the conflict remains short and major damage to oil production and shipment facilities is avoided, the rating implications from the conflict will be limited for the global insurance sector.
Fitch said, “We believe the earnings impact for insurers will be manageable at current rating levels, as war risk is generally excluded, apart from for some very specialised markets, unless the duration and scope of the conflict widen. A more prolonged period of economic and financial market volatility could indirectly affect insurers through loss cost inflation, falling asset values and rising defaults.”
The rating agency does not expect significant claims from property damage, business interruption or cyber insurance policies because they typically exclude acts of war.
The conflict has already resulted in tightened capacity, driven by a sharp repricing, and has created a correlated loss risk across war-risk insurance markets, said the rating agency.
Fitch said, “Initial claims booked in 1Q26 will give an idea of the earnings impact, but we expect this to be limited for most insurers, as in 2022, with the escalation of the Russia–Ukraine war. We believe the conflict’s indirect, second-order losses are more likely to affect ratings than direct (re)insurance losses, which will likely be considerably lower. Rating effects could also stem from potential changes to sovereign or bank ratings that influence insurers’ ratings. Such effects are more likely if the conflict is more protracted or damaging than assumed under Fitch’s base case.”
Fitch clarified that war risk coverage is compulsory at Lloyd’s when travelling through an area on the Joint War Committee list, such as the Strait of Hormuz.
Recently, war-risk marine and aviation covers across the region have either been cancelled at short notice or rewritten at much higher rates, resulting in premiums for maritime war covers for vessels transiting Hormuz being volatile but increasing as much as 20 times the norms of 0.25% of vessels’ insured value. Aviation war clauses cover fleet damage and confiscation, but exclude business interruption.
Dylan Mortimer, Marine Hull UK War Leader, Marsh, said that there could be near-term rate increases for the Marine Hull line of business in the Gulf of 25-50%.
The report stated that approximately 1,000 vessels, with aggregate hull values exceeding $25 billion, are currently in the Gulf region and surrounding waters. The total insured loss from the destruction of a vessel can reach several hundred million US dollars, depending on its type and cargo.
Additionally, Fitch highlighted that marine war protection and indemnity insurance would also cover pollution risk if a major oil spill were to occur, which is typically capped at $500 million per event. Aggregation risk is high owing to the presence of multiple vessels around Hormuz.
It is worth noting that the U.S. International Development Finance Corporation (DFC) recently revealed that Chubb will serve as the lead partner for its $20 billion Maritime Reinsurance Plan, aimed at restoring commercial shipping in the Gulf and helping to restart energy and trade flows through the Strait of Hormuz.
Fitch added, “Political violence and terrorism coverage, often part of property coverage, may be triggered by the war. Exposure is uncertain but could generate losses in GCC countries, notably including data centres and other infrastructure previously viewed as safe. We believe losses have been limited so far, but further strikes on key infrastructure remain a significant risk.”
Further, Fitch also noted the potential for a steady rise in claims for trade credit and political risk insurers if energy price shocks or trade disruption trigger insolvencies among corporates reliant on Gulf trade routes. Standard war exclusions limit direct trade credit exposure, but energy, petrochemicals and transportation sectors remain vulnerable, notably in Asian markets.
To conclude, Fitch said that even though Gulf insurers are heavily reinsured, global reinsurers have reduced exposure to the region. For diversified reinsurance groups, the credit ratings agency believes that the conflict at this stage is an earnings event driven by specialty lines.
“However, the potential for correlated losses may increase earnings volatility and could pressure capital should the conflict become prolonged, or should there be a more systemic shock to global economies and financial markets,” said Fitch.
Recently, a Moody’s report concurred with this sentiment, stating that the conflict has heightened tail risk for specialty insurers and reinsurers, by increasing the probability of large, concentrated claims if hostilities persist or escalate.
