The short-term impact of the US-Israeli conflict with Iran on the credit quality of (re)insurers has been limited, according to AM Best. However, a prolonged conflict may have wider market implications.
In its new Best's Commentary, "Prolonged Middle East Conflict Will Test Global Market Resilience of (Re)Insurers", AM Best states that it is continuing to monitor and assess the situation and any impact on ratings. At present, the insurance impact to both domestic and international (re)insurers is manageable. The scale of losses at this stage is not material. With low net retention from the regional market, net losses should be adequately absorbed. Similarly for reinsurers, one-off large losses are absorbable to the sector.
Principal takeaways:
-
The wider economic impact stemming from the conflict could have repercussions for the sector. A re-emergence of inflation, supply chain disruptions and economic slowdown will be a concern for global insurance markets
-
While the immediate impact of the conflict is being felt globally, most of the economies of the Gulf Cooperation Council are likely to see a contraction in revenues; however, any prolongation of the conflict could have much more severe implications for the region and the global economy
-
Regional insurers may have limited net exposure, but reinsurance renewals for this region could see challenges
-
Adequacy of risk management and governance practices will be tested
Mr Mahesh Mistry, senior director, head of analytics at AM Best’s London office and the main author of the commentary, said, "While AM Best does not anticipate any rating actions in the short term, much will depend on the length of the conflict. If it were to last several months, then the impact on global and regional economies is likely to be significant in terms of oil and gas prices, supply chain disruptions and inflationary pressures. These multiple points of pressure will affect both global and regional insurance companies."