A new report from Autonomous has suggested that direct insurance losses should remain relatively contained due to standard war and terror exclusions in many contracts, though the longer the conflict persists, and potentially expands, the greater the tail risk of events that could seep into losses for the re/insurance industry.
Since the resurgence of conflict in the Middle East earlier this year, Autonomous noted that P&C stocks have shown little indication of investor concern around first-order insurance losses.
Instead, attention has centred on second-order macroeconomic effects, notably elevated oil prices and the potential for resulting shifts in monetary policy.
Even so, according to the report, barring a recessionary scenario, the overall impact on re/insurers should remain limited, with insurance brokers potentially seeing modest upside.
“War risk globally is well-tested, especially in the Middle East. Policy wording has been significantly refined and tightened over the last decade, and as such, direct insured losses are likely limited to war exposures on marine and some other lines. In addition, where possible coverage has been restricted or repriced on account of the conflict,” Autonomous explained.
Using the Russia–Ukraine war as a proxy, the firm estimates that total direct insured losses were in the region of $25 billion, broadly comparable to an average Category 3 hurricane.
Notably, a significant share of those losses, around $10–15 billion, related to stranded aircraft, a driver that does not appear to be a factor at this stage of the Middle East conflict.
Echoing the views of other rating agencies and analytical firms, Autonomous noted that any losses arising from the conflict are likely to be concentrated in specialty lines, segments that are typically highly syndicated and benefit from substantial reinsurance protection.
“To-date losses have been felt most in PVT lines, with several claims arising from strikes on energy assets in the region. But in our view, loss uncertainty remains greatest on marine war lines, with accumulation likely being the greatest risk. Losses on other specialty lines — aviation, BI, cyber, and trade credit — are possible but unlikely to break the bank,” the firm’s report concluded.
