Insurers in the marine, aviation, cyber, and terrorism sectors are facing mounting underwriting pressures and potential accumulation losses amid escalating hostilities between Iran and Israel, according to Morningstar DBRS.
The report also noted that a prolonged conflict between Iran and Israel could strain reinsurance capacity in certain business lines, potentially leading to higher capital charges for primary insurers.
“The Iran-Israel conflict represents a multifaceted challenge for the global insurance industry, touching nearly every property and casualty (P&C) business line and asset class,” said the credit agency in its report, titled Middle East Tensions Add Underwriting and Investment Risks for Global Insurers and Reinsurers.
“While higher premiums in marine and aviation may offer some short-term underwriting relief, the accumulation of risk exposures across war, cyber, travel, and political risk lines presents meaningful capital pressure for many insurers,” the report said. At the same time, fluctuations in investment performance could weaken capital reserves and undermine solvency positions.
Companies with robust reinsurance coverage, prudent investment strategies, and proactive enterprise risk manageme nt frameworks are likely to be better equipped to navigate the volatility.
The report examined the industry segments most exposed to the Middle East conflict—namely marine, aviation, and cyber—as well as broader property and casualty risks, including property damage, political instability, and supply chain disruptions.
Surging Marine War-Risk Premiums
The report noted that marine insurance is typically the first segment to respond during a geopolitical crisis. “Beyond Israeli ports, the broader Middle Eastern region has seen significant risk repricing. Ships transiting the Red Sea, the Strait of Hormuz, and the Persian Gulf, which are all critical global energy trade chokepoints, are facing rapidly rising premiums.”
In fact, hull and machinery insurance premiums for vessels transiting the Strait of Hormuz have surged by 60% in recent weeks, the report stated, citing a June 18 article from the Financial Times titled “Insurers lift prices 60% for key Iran route as conflict threatens shipping.”
The rapid increase “in war-risk premiums is a double-edged sword for marine insurers,” said the Morningstar DBRS report.
Although elevated premiums may enhance short-term underwriting profitability—especially for specialized marine war risk insurers—the heavy concentration of exposure along key shipping routes heightens the risk of substantial, correlated losses in the event of a major incident, the report warned.
“The seizure or targeting of commercial tankers by Iranian forces in the past demonstrates how quickly insured losses can materialize. For instance, a direct missile strike on a large LNG tanker could result in insured losses exceeding $500 million considering hull, cargo, and potential liability claims.”
The report further noted that cautious global reinsurers may react by raising premiums or scaling back capacity.
“The war-risk accumulation problem could thus strain capital adequacy ratios for some specialty underwriters and marine syndicates.”
Aviation Hull, Liability Lines Face Higher Exposures
The report stated that the Iran-Israel conflict heightens risks for aviation insurers underwriting commercial hull and liability coverage, due to threats from contested airspace and ground-related hazards.
Although war-risk policies often contain exclusions that limit coverage in active conflict zones, the report explained that “the nature of modern missile and drone technology makes it difficult to fully anticipate or contain losses.”
“A stray missile or miscalculated air defence response could result in the loss of commercial aircraft, triggering significant insurance claims,” the report said, citing the example of the Ukraine International Airlines Boeing 737-800 with 176 occupants, which was shot down by Iranian air defenses after it was mistakenly identified as an American cruise missile.
“In addition to in-flight risks, airports, maintenance facilities, and aviation infrastructure in Israel, Jordan, and Gulf states are now under heightened threat. Ground-based attacks could lead to property damage, business interruption, and liability claims,” the report continued.
“War-risk underwriters have already begun to reprice premiums and tighten policy wordings, introducing more explicit exclusions for conflict zones,” the report said.
“While global insurers have reduced their overall aviation war-risk exposure since the grounding of aircraft in Russia following the invasion of Ukraine, any large aviation loss event could still strain balance sheets. Reinsurers may also impose higher attachment points or reduce retrocession capacity, forcing primary carriers to absorb higher loss retentions.”
State-Sponsored Cyber Attacks
Unlike traditional military operations, cyber warfare transcends geographical boundaries and can impact insured parties well beyond the immediate conflict zones, the report noted. It also highlighted that insurers themselves are vulnerable targets, as evidenced by recent cyberattacks on several U.S. regional insurers and reinsurers that have no direct ties to Middle East activities. (The report referenced a June 20 Reuters article titled "Insurer Aflac Investigating Possible Data Breach" regarding a cyberattack on a U.S. life and health insurer.)
“For cyber insurers, the growing scale and sophistication of state-sponsored cyberattacks have been raising questions about risk modeling, underwriting, and capital adequacy,” the report said.
“Many policies contain ‘war exclusions’ that seek to reduce or eliminate claims caused by nation-state cyber warfare, but legal disputes over attribution are increasingly common,” said the report, noting that courts “may be reluctant to accept narrow interpretations of war exclusions in the face of ambiguous cyberattack attribution.”
Furthermore, the report indicated that reinsurers might increase cyber insurance premiums and adopt a more selective approach when allocating capacity.
“The loss of confidence in cyber risk models, particularly for accumulation events driven by systemic attacks, poses a potential capital risk for insurers heavily exposed to the cyber market.”
Broader Property, Political, and Supply Chain Risks
Beyond the primary lines mentioned, the report stated that the Iran-Israel conflict also poses considerable risks across various other property and casualty business segments.
For instance, commercial property insurers are encountering heightened political risk exposure due to multinational corporations operating within the region. “Energy companies, logistics providers, and exporters operating in or near conflict zones may seek additional political risk insurance or terrorism coverage, which is becoming increasingly expensive.”
Another exposed segment is trade credit where insurers may also “face rising claims as exporters struggle to fulfil contracts because of shipping disruptions or sanctions.”
“The risk of retaliatory sanctions and financial system instability could heighten exposures for insurers active in global trade credit and political risk markets,” the report continued. “Additionally, global supply chain disruptions could trigger claims under contingent business interruption coverages, especially if maritime chokepoints are blocked.”
Morningstar DBRS explained that the interconnected nature of supply chains means that even “localized conflict events can have cascading effects on insured losses across multiple regions and industries.”
Source: Insurancejournal
