AM Best has suggested that losses to the global reinsurance market from the ongoing conflict in the Middle East are limited so far, and would typically take the form of single large losses.
AM Best’s report noted 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.
The rating agency continued, “However, if the conflict continues, there is scope for accumulations across countries and products.
“Reinsurers are monitoring the situation closely and adapting to the changing landscape. In the medium term, the global reinsurance community shares the concerns that the conflict has the potential to invigorate inflationary pressures, interest rates and bond yields if the conflict is not swiftly resolved.”
Elsewhere in the report, AM Best said that while many observers view the conflict as a regional one, its implications have the potential to be more pronounced globally, with economies likely to suffer stock market volatility, supply chain disruption and the reemergence of inflationary pressures.
“With the region producing approximately 20% of global energy resources, the disruption caused by the conflict has resulted in the countries of the Gulf Cooperation Council (GCC) halting or reducing production of oil and gas. Even if the conflict comes to a swift end, the infrastructure is not expected to be back running at full capacity any time soon,” the rating agency observed.
Meanwhile, as a consequence of the US/Israeli military action, the price of oil and gas on global markets has reportedly surged considerably and remains volatile.
As per AM Best, the Strait of Hormuz remains almost completely closed to shipping in and out of the Persian Gulf, with increasing concerns regarding the transportation and its impact on the pricing of commodities such as fertiliser and helium.
“With the consequent supply chain disruption and price increases in oil and gas, alongside stock market volatility, a resurgence in the rate of inflation cannot be ruled out in economies worldwide,” AM Best explained.
In related news, 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.
DFC’s reinsurance facility, announced earlier this week, will insure losses up to approximately $20 billion on a rolling basis.
As we covered back then, this revolving insurance offering will apply only to vessels that meet eligibility criteria, with insurance focusing on Hull & Machinery and Cargo to start.
Joe Peiser, CEO of Risk Capital at Aon, noted that for many organisations the most significant exposure stems from disruption to supply chains, logistics routes and insurance coverage structures.
