David Kinzel, head of Aon Group’s U.S. practice for political risk, said that although the United States and Iran have reached an agreement to end the military conflict, uncertainty surrounding the terms of the agreement may hinder any material improvement in the industry’s risk appetite in the near term.
On June 15, US President Donald Trump, Vice President Vance and Iranian Parliament Speaker Mohammad Bagher Ghalibaf digitally signed an interim memorandum of understanding aimed at ending hostilities between the two countries.
The preliminary agreement provides for a 60-day negotiation period during which the two sides will seek to conclude a comprehensive peace treaty.
The formal signing ceremony of the framework agreement is scheduled to be held on June 19 in Bürgenstock, Switzerland, near Geneva.
With this in mind, Aon risk advisory leaders are reportedly monitoring how insurers are responding to political risk, maritime/freight and the wider commercial risk market.
David Kinzel said political risk and political violence insurers had been “extremely cautious” in the Middle East throughout the conflict, refusing in many cases to support new business or tighten renewal terms and exclusions.
Kinzel continued: “We expect underwriters to remain cautious due to uncertainty over the terms of the agreement, what it means for the reopening and security of the Strait of Hormuz, and whether the de-escalation will persist.
“We do not expect significant changes in risk appetite over the next few weeks. Insurers will want to see a sustained period of calm, clearer enforcement of the agreement and some evidence that trade and energy flows can normalize before they are willing to take on more risk in the region.
“This shift is likely to take months rather than weeks to measure, and recent volatility will remain lingering in the minds of underwriters as they assess new risks over the next 12 to 18 months.”
Phil Smaje, Aon’s global industry specialist leader for transportation and logistics, added: “We expect maritime war insurers to maintain a degree of caution in the short term until there is more clarity that the conflict has subsided.
“From that point on, pressure is likely to increase to reduce or eliminate additional war premiums. At the same time, markets will assess the damage from conflicts in the Middle East.
“While the scale of these losses will impact pricing, the availability of post-conflict insurance capacity will be a key determinant of overall pricing levels and market appetite.”
