While acknowledging that the re/insurance industry remains well-positioned to absorb moderate losses from terrorism and political violence due to strong capitalisation and diversified underwriting portfolios, Morningstar DBRS has warned that prolonged geopolitical and military tensions in the Middle East could increase underwriting volatility, tighten reinsurance terms, and prompt more selective coverage of politically exposed risks.
According to a new report from the rating agency, the key concern is not only the likelihood of attacks but also how losses may accumulate across multiple insurance lines.
Morningstar DBRS noted that incidents of terrorism and political violence can trigger claims simultaneously across property, marine, aviation, and business interruption policies.
The agency also highlighted that distinguishing between terrorism, sabotage, cyber incidents, and acts of war is becoming increasingly difficult, potentially increasing the likelihood of coverage disputes.
The report explained that the global market for terrorism and political violence insurance is highly specialised and concentrated among a small group of insurers and managing agents, often provided through Lloyd’s of London syndicates and specialty carriers.
“Political violence policies typically provide broader protection than stand-alone terrorism insurance, covering risks such as sabotage, riots, civil commotion, insurrection, and politically motivated strikes. Coverage limits and large commercial risks often reach several hundred million dollars through layered placements involving several insurers,” the report said.
As expected, demand for these policies typically rises during periods of geopolitical tension and social unrest.
According to the rating agency, amid the ongoing Middle East conflict, businesses with international exposure, including multinational corporations, airlines, logistics operators, infrastructure owners, and hospitality groups, may reassess their risk management strategies and seek broader coverage.
At the same time, a prolonged geopolitical crisis could prompt insurers to revisit pricing and coverage terms, with politically sensitive assets potentially facing higher premiums or reduced limits.
Morningstar DBRS thus emphasised that reinsurers play a central role in shaping the availability and cost of terrorism and political violence coverage.
“Reinsurers such as Munich Re, Swiss Re, Hannover Re, and SCOR SE provide significant capital support to specialty insurance markets. Their underwriting appetite directly influences the capacity available to primary insurers writing political violence risks.
“If geopolitical tensions persist or escalate, reinsurers may respond by tightening underwriting standards, raising attachment points, or limiting capacity for certain high-risk exposures. This would increase retention levels among primary insurers and likely lead to higher premiums for policyholders.
“Reinsurance may also reassess their accumulation exposure across multiple insurance lines and geographic regions. Managing accumulation is a key focus for reinsurers during periods of geopolitical instability.”
Marcos Alvarez, Managing Director, Global Financial Institution Ratings, Morningstar DBRS, commented, “We believe that the global insurance sector’s strong capitalisation and diversified underwriting base should limit the immediate impact of the geopolitical escalation.
“Nevertheless, prolonged hostilities could increase underwriting volatility and lead to tighter conditions in certain specialty insurance markets, particularly for assets perceived as politically or strategically sensitive.”
