As the Middle East enters its third week of the US/Israel-Iran conflict, AM Best says losses in global reinsurance markets are currently limited, often in the form of single large losses.
AM Best’s report notes that war risks are often excluded from policies but offered as riders for certain risks, and that Iran risks are largely uninsured by global reinsurers due to sanctions, meaning damage to infrastructure will have little impact on the loss experience.
The ratings agency continued, “However, if the conflict continues, there is room for accumulation across countries and products.
“Reinsurers are monitoring the situation closely and adapting to the evolving landscape. In the medium term, the global reinsurance community is concerned that the conflict has the potential to exacerbate inflationary pressures, interest rates and bond yields if not resolved quickly.”
Elsewhere in the report, AM Best said that while many observers believe the conflict is regional, its effects are likely to be more pronounced globally, with economies likely to suffer from stock market volatility, supply chain disruptions and renewed inflationary pressures.
“The region produces about 20% of the world’s energy resources, and the damage caused by the conflict has led Gulf Cooperation Council (GCC) countries to halt or reduce oil and gas production. Even if the conflict ends quickly, infrastructure is not expected to return to full capacity soon,” the rating agency said.
Meanwhile, oil and gas prices on global markets have increased significantly and remain volatile, reportedly as a result of US/Israeli military actions.
The Strait of Hormuz remains almost completely closed to shipping in and out of the Persian Gulf, AM Best reports, amid growing concerns about shipping and its impact on pricing for commodities such as fertilizer and helium.
“With ensuing supply chain disruptions, rising oil and gas prices, and stock market volatility, a pickup in inflation across global economies cannot be ruled out,” AM Best explained.
In related news, the U.S. International Development Finance Corporation (DFC) recently revealed that Chubb will serve as the lead partner of its $20 billion maritime reinsurance program aimed at restoring commercial shipping in the Gulf and helping restart energy and trade flows in the Strait of Hormuz.
The DFC reinsurance facility announced earlier this week will provide coverage for rolling losses of up to approximately $20 billion.
As we reported at the time, this rotating insurance product is only available to ships that meet the eligibility criteria, with coverage focusing initially on hull and machinery as well as cargo.
The leaders of global insurance and reinsurance brokerage group Aon have also shared their views on a range of insurance businesses as conflict in the Middle East continues.
Joe Peiser, CEO of Aon Venture Capital, pointed out that for many organizations, the most significant risks come from disruptions in supply chains, logistics routes and insurance underwriting structures.
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