Escalating hostilities in the Middle East have halted shipping transits, grounded flights across major regional hubs, and raised the risk of missile strikes on commercial infrastructure, increasing underwriting uncertainty across multiple insurance lines, said Mr Fareed Lutfi, Secretary-General of the Emirates Insurance Association.
The rapidly escalating conflict in the Middle East marks one of the most significant geopolitical crises in the region in years, he told Middle East Insurance Review.
Insurers’ investment portfolios at risk
Mr Lutfi feels that, from a credit perspective, higher premiums may provide short-term earnings support but are offset by elevated aggregation risk, tighter reinsurance capacity, and potential correlated losses in marine, aviation, property, and specialty lines.
He believes that prolonged disruption to energy flows and global transport networks could also increase financial market volatility, affecting insurers' investment portfolios and their profitability.
Challenges
Mr Lutfi highlighted some of the key challenges facing the insurance industry in the region:
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Escalating hostilities involving Iran have disrupted Gulf airspace and shipping, prompting war risk policy cancellations and sharp premium repricing for Strait of Hormuz transits.
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Marine, aviation, property, travel, and supply chain insurance lines face heightened underwriting volatility and aggregation risk.
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Prolonged transport disruption and market volatility could pressure earnings and capital for insurers with concentrated specialty exposures.
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The current conflict adds to a series of recent geopolitical crises that have already pressured the profitability of marine and aviation insurers. While surging war risk premiums may support earnings, the concentration risk in narrow corridors, such as the Strait of Hormuz, and the risk of simultaneous losses across multiple lines increase underwriting volatility.
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As seen in past conflicts, rate increases would be linked to a combination of rerouting and higher oil prices; rerouting involves being at sea for longer which reduces capacity and if the cargoes must get there by a certain time, they must sail faster, which uses up more fuel.
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Marine insurers have withdrawn war risk cover for vessels crossing the Arabian Gulf and the Strait of Hormuz.
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The conflict has also triggered a reassessment of war risk insurance premiums where rates are raised multiple times.
“In addition, the war is putting food security in the Gulf region under serious pressure by snarling shipping routes and threatening key ports. GCC countries import around 80% to 90% of their food and more than 70% of GCC food imports pass through the Strait of Hormuz, making the region highly exposed to disruption and so a prolonged conflict could quickly turn a logistics problem into a price and supply problem,” he said. The region last faced a food crisis in 2008.