With the recent escalation of conflict in the Middle East, S&P said reinsurers’ capital adequacy is sufficient to mitigate the potential risk of a deterioration in credit quality, although those with a broad geographic footprint in the region and significant exposure to specialist markets may be most affected.
As readers will know, conflict in the Middle East escalated dramatically over the weekend, with a series of attacks and retaliatory attacks causing havoc and chaos in Iran, Israel, Iraq, Jordan, Cyprus and several GCC countries.
“The human toll continues to rise, and the damage to the economy is already severe,” Standard & Poor’s said in a new report.
Major international airports in the region have reportedly been closed and maritime activities have been severely disrupted, including concerns over the potential closure of the Strait of Hormuz, a strategic thoroughfare through which about 20% of the world’s crude oil and seaborne natural gas transports.
“We believe there will be sizable insured losses and that the conflict is likely to have far-reaching impacts on the reinsurance industry. However, the ultimate size and impact on the reinsurance industry remains highly uncertain at this time and will depend heavily on the duration, scale and evolution of the conflict. Given the fluid nature of the situation, the development of losses is likely to unfold over weeks or even months,” S&P explained.
The global reinsurance industry enters 2026 with “considerable” capital strength, supported by strong underwriting performance and strong investment income, the company said.
As a result, the agency expects capital adequacy to remain a core strength of the industry, with reinsurers continuing to demonstrate resilience even in severe stress scenarios, including geopolitical shocks such as the current conflict.
Still, S&P noted that it believes some reinsurance product lines face greater volatility and potential losses, including specialty categories such as marine, aviation, energy, political violence, terrorism and cyber, as well as property risks in affected regions and policies covering supply chain or trade disruptions.
S&P added: “Marine insurers have begun withdrawing war risk coverage applicable to conflict zones, including the Persian Gulf and adjacent waters. Reinsurers with a broad geographic footprint and specialized markets in the Middle East are the companies most likely to be affected.”
The company concluded that it acknowledged the high degree of uncertainty surrounding the scope, duration and consequences of the conflict in the Middle East.
“We expect political risks to continue to intensify regardless of how long the conflict lasts,” S&P said. “Potential spillovers include disruptions in commodity markets (particularly oil and gas), supply chain disruptions, renewed inflationary pressures, slower economic growth and heightened capital market volatility.”
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