A report from S&P Global Ratings shows that Asia-Pacific insurance companies have limited direct risk exposure to the Middle East and that risks remain controllable under the base scenario, but risks may escalate if the oil market chaos lasts for a longer period of time.
In its report, “Asia Pacific Insurers: Market volatility is the biggest war-related impact,” Standard & Poor’s said its base case assumes the conflict will reach its peak severity and that the effective closure of the Strait of Hormuz will ease in April. However, some disruptions are expected to last for several months.
Insurers in the Asia-Pacific region face potential losses on marine and cargo policies as trade flows through Middle East routes, although this component typically accounts for only a small portion of overall premiums, the ratings agency said.
War-related risks for Asia-Pacific insurers are reported to be mostly indirect, including through financial market fluctuations.
S&P added: “In our base case, in which the effective closure of the Strait of Hormuz eases in April, these insurers have sufficient capital buffers to absorb investment and underwriting pressures from the conflict in the Middle East.
“Insurers operating in low-income, net energy-importing economies will be most vulnerable in the adverse scenario of prolonged conflict.”
As of Monday the 13th, the conflict has entered an unstable new phase after the collapse of a fragile two-week ceasefire that briefly halted 45 days of intense fighting.
A temporary truce established in late March for high-stakes talks in Islamabad failed to produce a lasting agreement on Iran’s nuclear enrichment and control of the Strait of Hormuz.
With the ceasefire now in effect, the United States has launched a naval blockade of all Iranian ports, while Israeli forces have simultaneously stepped up air strikes in Lebanon, marking a significant escalation in regional hostilities.
Philip Chung, a credit analyst at S&P Global Ratings, commented, “Rising energy costs are driving up inflation and putting upward pressure on interest rates. A prolonged conflict will lead to higher input costs for insurance companies, weaker macroeconomic conditions and higher costs of living.”
“For non-life insurers, we expect compounding claims charges across motor, property and commercial lines to drive premiums higher.”
