The credit impact of the Iran conflict on Gulf Cooperation Council (GCC) insurers is expected to be limited in the near term, with most pressure coming through investment portfolios rather than insurance claims, according to new analysis from Moody's Ratings (Moody's). However, a prolonged or escalating conflict could materially weaken insurers' balance sheets and credit outlooks.
In a sector commentary, Moody's said that disruptions to oil and gas exports and tourism would weigh on regional asset prices, particularly real estate and equities, leading to valuation declines.
Larger diversified insurers, which have relatively low exposure to real estate and equities, are less vulnerable than smaller ones. Within Moody’s rated portfolio, which is skewed toward larger companies, around 40% of the capital risk charge reflects asset risk per the rating agency's capital adequacy metrics, from which real estate and equity exposures account for about one third of the capital risk charge.
Moody’s estimates that a 20% decline in real estate and equity valuations would reduce its rated companies' total equity by around 7%. This would be largely absorbable, as most rated insurers have adequate capital buffers. Smaller GCC insurers, in contrast, often have limited capital cushions as well as higher equity and real estate exposure.
The direct claims impact of the conflict will likely be negligible for all GCC insurers, as war risk is typically excluded from standard insurance policies in the region. London market insurers generally underwrite this risk, including for energy and goods shipments through vulnerable shipping lines such as the Strait of Hormuz and the Red Sea, although they have reduced their capacity during the current period of heightened political tension.
Global players
The Moody's commentary added that global (re)insurers active in the region face heightened exposure from the conflict and Iranian attacks, but war exclusions should materially limit ultimate losses, despite the potential for severe physical damage. The main underwriting vulnerability lies in marine hull and cargo, where accumulation risk arises if war-covered vessels are immobilised in ports or anchorages and struck in close proximity.
In contrast, commercial property, hospitality, event cancellation and cyber face greater risk that losses are challenged as terrorism rather than war, driving high legal defence costs and occasional claim payments. Additional uncertainty stems from war-risk buy-backs, where insureds’ pay a premium to remove the war exclusion, and bespoke facultative covers, while the duration and intensity of the conflict remain key uncertainties influencing insurers’ ultimate loss exposure.
Short-lived vs prolonged hostilities
Moody’s baseline scenario is that the conflict will be relatively short-lived, likely a matter of weeks, and that navigation through the Strait of Hormuz and air traffic will then resume at scale. Under this scenario, GCC insurers would not face immediate material pressure on their credit profiles.
Second round pressures would intensify in the event of a prolonged conflict, or if attacks on GCC countries were to escalate. In this scenario, sharper declines in asset prices, weakening investor sentiment, and deteriorating macroeconomic conditions would weigh on insurers’ balance sheets.
The worsening economic environment would in turn undermine insurers' premium growth, a key factor underlying Moody’s current stable outlook for the GCC insurance sector. A deceleration in premium growth would likely exacerbate competitive pricing pressures as insurers compete for a smaller pool of business, compressing underwriting margins. Combined with more pronounced asset valuation losses, these factors could erode capital buffers and, if sustained, negatively affect for the sector’s credit outlook.