Marine, aviation, cyber, and terrorism insurers face immediate underwriting pressures and potential accumulation losses as a result of heightened hostilities between Iran and Israel, according to Morningstar DBRS.
In addition, the report said, reinsurance capacity in certain business lines could tighten in a prolonged Iran-Israel conflict, increasing capital charges for primary carriers.
“The Iran-Israel conflict represents a multifaceted challenge for the global insurance industry, touching nearly every property and casualty (P&C) business line and asset class,” said the credit agency in its report, titled Middle East Tensions Add Underwriting and Investment Risks for Global Insurers and Reinsurers.
“While higher premiums in marine and aviation may offer some short-term underwriting relief, the accumulation of risk exposures across war, cyber, travel, and political risk lines presents meaningful capital pressure for many insurers,” the report said. At the same time, investment portfolio volatility can threaten capital buffers and solvency margins.
However, companies with strong reinsurance protection, conservative investment allocations, and proactive enterprise risk management frameworks will be better positioned to weather the volatility.
The report dove into the industry segments with the most exposure to the conflict in the Mideast: marine, aviation, and cyber, as well as broader P/C risks in the area of property, political, and supply chain risks.
Surging Marine War-Risk Premiums
The report explained that marine insurance is often the first line of insurance business to react in a geopolitical crisis. “Beyond Israeli ports, the broader Middle Eastern region has seen significant risk repricing. Ships transiting the Red Sea, the Strait of Hormuz, and the Persian Gulf, which are all critical global energy trade chokepoints, are facing rapidly rising premiums.”
Indeed, hull (physical damage) and machinery insurance premiums for ships passing through the Strait of Hormuz jumped 60% in the last few weeks, said the report, quoting a June 18 article in the Financial Times, titled “Insurers lift prices 60% for key Iran route as conflict threatens shipping.”
The rapid increase “in war-risk premiums is a double-edged sword for marine insurers,” said the Morningstar DBRS report.
While higher pricing may bolster underwriting profitability in the short term (particularly for specialty marine war risk underwriters), the concentration of risk in key shipping lanes raises the potential for significant, correlated losses if a major incident occurs, said the report.
“The seizure or targeting of commercial tankers by Iranian forces in the past demonstrates how quickly insured losses can materialize. For instance, a direct missile strike on a large LNG tanker could result in insured losses exceeding $500 million considering hull, cargo, and potential liability claims.”
In addition, cautious global reinsurers may respond with higher premiums or reduce their capacity levels, the report continued.
“The war-risk accumulation problem could thus strain capital adequacy ratios for some specialty underwriters and marine syndicates.”
Aviation Hull, Liability Lines Face Higher Exposures
The Iran-Israel conflict also increases risks for aviation insurers covering commercial hull and liability lines, related to airspace conflict and ground risks, the report said.
Although war-risk policies often contain exclusions that limit coverage in active conflict zones, the report explained that “the nature of modern missile and drone technology makes it difficult to fully anticipate or contain losses.”
“A stray missile or miscalculated air defence response could result in the loss of commercial aircraft, triggering significant insurance claims,” the report said, citing the example of the Ukraine International Airlines Boeing 737-800 with 176 occupants, which was shot down by Iranian air defenses after it was mistakenly identified as an American cruise missile.
“In addition to in-flight risks, airports, maintenance facilities, and aviation infrastructure in Israel, Jordan, and Gulf states are now under heightened threat. Ground-based attacks could lead to property damage, business interruption, and liability claims,” the report continued.
“War-risk underwriters have already begun to reprice premiums and tighten policy wordings, introducing more explicit exclusions for conflict zones,” the report said.
“While global insurers have reduced their overall aviation war-risk exposure since the grounding of aircraft in Russia following the invasion of Ukraine, any large aviation loss event could still strain balance sheets. Reinsurers may also impose higher attachment points or reduce retrocession capacity, forcing primary carriers to absorb higher loss retentions.”
State-Sponsored Cyber Attacks
Unlike conventional military activity, cyber warfare crosses borders and can affect insureds far from the physical conflict zone, the report said, noting that insurers are also potential targets, as demonstrated by recent cyberattacks against several U.S. regional insurers and reinsurers without a direct connection to Middle East operations. (The report quoted a June 20 Reuters article on a cyber attack against U.S. life and health insurer titled “Insurer Aflac investigating possible data leak after cyberattack.”)
“For cyber insurers, the growing scale and sophistication of state-sponsored cyberattacks have been raising questions about risk modeling, underwriting, and capital adequacy,” the report said.
“Many policies contain ‘war exclusions’ that seek to reduce or eliminate claims caused by nation-state cyber warfare, but legal disputes over attribution are increasingly common,” said the report, noting that courts “may be reluctant to accept narrow interpretations of war exclusions in the face of ambiguous cyberattack attribution.”
In addition, reinsurers may raise cyber premiums and be more selective about allocating capacity, the report said.
“The loss of confidence in cyber risk models, particularly for accumulation events driven by systemic attacks, poses a potential capital risk for insurers heavily exposed to the cyber market.”
Broader Property, Political, and Supply Chain Risks
Beyond the aforementioned core lines, the report said the Iran-Israel conflict raises significant concerns across other P/C business segments.
For example, commercial property insurers face increased political risk exposure for multinational corporations with operations in the region. “Energy companies, logistics providers, and exporters operating in or near conflict zones may seek additional political risk insurance or terrorism coverage, which is becoming increasingly expensive.”
Another exposed segment is trade credit where insurers may also “face rising claims as exporters struggle to fulfil contracts because of shipping disruptions or sanctions.”
“The risk of retaliatory sanctions and financial system instability could heighten exposures for insurers active in global trade credit and political risk markets,” the report continued. “Additionally, global supply chain disruptions could trigger claims under contingent business interruption coverages, especially if maritime chokepoints are blocked.”
Morningstar DBRS explained that the interconnected nature of supply chains means that even “localized conflict events can have cascading effects on insured losses across multiple regions and industries.”
Topics Carriers Underwriting Reinsurance
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