Geopolitical risks and AI-driven cyberattacks are set to remain key risk factors for European re/insurers in 2027, according to new commentary from S&P Global Ratings.
S&P’s new report has suggested that geopolitical risks affect the European insurance sector mainly indirectly, because policies typically exclude acts of war, including those covering business interruption and transport.
As a result, an event such as the effective closure of the Strait of Hormuz would pose a threat mainly through capital market volatility rather than a rise in claims.
War risks are instead typically covered by specialty insurers, which recently faced accumulated losses of $2.5 billion.
Although this exceeded their annual budget of $2 billion, S&P said a significant rise in premium rates for war cover allowed them to protect their margins.
Beyond geopolitics, S&P pointed to other risks facing the sector, including its growing exposure to private credit and private equity markets, as well as the rise of AI.
S&P described the latter as a “double-edged sword,” adding that although AI raises cybersecurity risks, it also offers opportunities through the digital enhancement of insurers’ operations.
“AI has emerged as a significant risk to ratings across sectors. Within our rating framework, a successful cyberattack, for example the theft of confidential financial and biometric data, might reflect a potential deficit in governance and would typically affect ratings. However, the European insurers that we rate have taken proactive measures to reduce cyber risk,” the rating agency said.
In parallel, AI has reportedly already improved operational procedures. A recent S&P survey of the insurers it rates found that some are making significant progress in implementing AI across the entire value chain, from client-facing call centres to claims handling and back-office functions.
“While the current investments in AI seem to offset financial gains, the strategic benefits are becoming clear. Specifically, AI improves customer experience by supporting higher net promoter scores in high-frequency, low-severity claims processing. It also makes it easier to attract skilled professionals because the automation of routine data tasks means that insurers can offer more relevant tasks to new employees,” S&P explained.
While these risks remain, the rating agency concluded that it expects rated European insurers to maintain their high creditworthiness, supported by their conservative investment risk appetite, prudent capitalisation and robust margins.
