A new report from AM Best warns that if conflict in the Middle East persists or escalates, reinsurers may need to reassess their risk exposures, with renewals set to be a key inflection point for the industry in regional markets.
The rating agency said this could lead to higher pricing of commercial risks, as well as changes to terms and conditions, exclusions and event limits.
AM Best added: “In addition, commission rates for certain categories may be adjusted and local markets may face greater pressure to retain more.”
The company’s new report suggests this dynamic could create challenges for an industry that is “heavily reliant” on reinsurance.
AM Best notes that while risk-adjusted capital for rated insurers in the region remains strong, the absolute capital base of most players is limited.
“Their ability to improve retention rates is likely to be limited at best, with reinsurance capabilities and expertise still required for the market to function effectively,” the ratings agency concluded.
Earlier today, AM Best provided further details from the same report, noting that the current conflict in the Middle East has caused limited damage to the global reinsurance market so far, typically taking the form of a single large loss.
The agency highlighted that war risks are often excluded from policies but offered as riders for certain risks, and that global reinsurers have largely not underwritten Iran risks due to sanctions, meaning damage to infrastructure has little impact on loss experience.
AM Best’s report also addressed the cyber insurance industry, noting that many insurers have been excluding war or state-sponsored attacks.
However, some products covering war risks may be affected in the medium term if cyber risks escalate due to state-sponsored actors.
The agency emphasized that while the United States remains the world’s leading cyber insurance market, international markets are expected to steadily capture a larger share of global premiums in the coming years.
If cyberattacks become the weapon of choice in the region, events such as the ongoing Middle East conflict could be a catalyst for this growth.
AM Best added that state-sponsored cyber actors are likely to increase their activity amid geopolitical tensions, and the impact and success of such attacks will largely depend on the insured’s cyber defenses and cyber hygiene.
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