A new report from Autonomous suggests that direct insured losses should remain relatively manageable due to standard war and terror exclusions in many contracts, although the longer a conflict lasts and potentially expands, the greater the tail risk of events that could filter into losses across the reinsurance industry.
Autonomous notes that property and casualty stocks have shown little sign of investor concerns about primary insurance losses since the resurgence of conflict in the Middle East earlier this year.
Instead, attention has been focused on secondary macroeconomic impacts, particularly higher oil prices and the potential for resulting shifts in monetary policy.
Even so, according to the report, barring a recessionary scenario, the overall impact on reinsurers/insurers should remain limited, with insurance brokers likely to see modest upside.
“War risk is well-tested around the world, especially in the Middle East. Over the past decade, policy wording has been significantly refined and tightened, so that direct insured losses may be limited to war risk on maritime and some other lines. In addition, possible coverage has been restricted or repriced due to conflict,” explains Autonomy.
Citing the Russia-Ukraine war, the company estimates total direct insured losses at about $25 billion, roughly the same as an average Category 3 hurricane.
It is worth noting that a large portion of this loss (approximately $10-15 billion) is related to stranded aircraft, which does not appear to be a factor at this stage in the Middle East conflict.
Autonomous echoed the sentiments of other ratings agencies and analyst firms, noting that any losses from conflicts are likely to be concentrated in specialist areas, which are often highly syndicated and benefit from substantial reinsurance protection.
The company’s report concluded: “PVT lines have suffered the most significant losses to date, with several claims arising from attacks on energy assets in the region. But we believe the Maritime Warfare line still has the greatest uncertainty about losses and accumulation is likely to be the greatest risk. Other specialist lines – aviation, business intelligence, cyber and trade credit – are likely to suffer losses but are unlikely to break the bank.”
Protracted Middle East conflict could widen reinsurers’ exposure to losses despite exclusions appeared first on ReinsuranceNew.ws
