Robust reinsurance coverage a buffer against Middle East geopolitical risk: Morningstar DBRS

Firms with robust reinsurance coverage, conservative investment strategies, and proactive enterprise risk management frameworks are better equipped to withstand the volatility stemming from the ongoing hostilities between Iran and Israel, according to Morningstar DBRS.

Morningstar DBRS indicated that the Israeli airstrikes on Iranian military and nuclear facilities, followed by Iran’s retaliatory missile and drone attacks, represent one of the most dangerous escalations in recent Middle Eastern history, posing a complex and far-reaching challenge for the global insurance industry that affects nearly every property and casualty business line and asset class.

“The ripple effects extend well beyond the immediate combat zone, affecting marine shipping lanes, aviation corridors, cyber networks, global capital markets, and supply chains,” the rating agency explained.

Namely, Morningstar DBRS said that marine, aviation, cyber and terrorism insurers face immediate underwriting pressures and potential accumulation losses.

Meanwhile, reinsurance capacity in certain business lines could tighten in a prolonged Iran-Israel conflict, increasing capital charges for primary carriers.

Morningstar DBRS suggested that balance sheet resilience, underwriting discipline, and proactive capital management will be critical differentiators for insurers navigating this environment, particularly if the conflict is prolonged.

“Companies with strong reinsurance protection, conservative investment allocations, and proactive enterprise risk management frameworks are better positioned to weather the volatility. Conversely, insurers with aggressive growth strategies in high-risk lines, limited capital flexibility, or high equity markets exposure may face pressure on credit rating outlooks if the conflict escalates further,” the rating agency added.

Morningstar DBRS concluded, “The Iran-Israel conflict is, in many ways, a stark reminder of the insurance industry’s evolving role as an absorber of geopolitical and systemic risk in an increasingly interconnected world.”

Despite reports of a ceasefire between Iran and Israel, Israeli Defense Minister Israel Katz announced this morning that he has ordered the Israel Defense Forces to launch “intense strikes on regime targets in the heart of Tehran” in response to what he called Iran’s violation of the truce.

In response, Iranian state media denied the allegation, stating that Iran did not fire any missiles at Israel following the ceasefire’s implementation.

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