War exclusions to largely limit impact of recent Middle East turmoil: AM Best

AM Best expects the direct impacts of the recent military action in the Middle East on the insurance industry to be largely limited by war exclusions and narrowly defined policy triggers.

In its recent report, AM Best noted that there has been no ratings impact on insurers operating in the region so far. However, it warned that escalating tensions could affect those underwriting political risk, trade credit, and war risk coverage in the region.

Mahesh Mistry, senior director, AM Best, said, “Disputes over exclusions may arise from ambiguous policy language, particularly in relation to business interruption claims, where coverage and causality may be contested.

“For example, port closures, logistical delays, and production halts could potentially trigger business interruption claims.”

The report also highlighted significant impacts on the aviation and marine specialty markets. Premiums for ships operating in the Persian Gulf, especially through the Strait of Hormuz, have risen sharply in response to heightened risk. Aviation insurers have similarly increased rates for carriers flying near conflict zones.

Morningstar DBRS also commented on the broader effects, stating, “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.

The rating agency added that marine, aviation, cyber, and terrorism insurers face immediate underwriting pressures and potential accumulation losses.

AM Best further noted that many Gulf Cooperation Council (GCC) countries are heavily reliant on the hydrocarbon sector for economic growth.

The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. AM Best maintained its stable outlook on the GCC in April, but noted that this region could be adversely impacted by second-order effects.

Ann Modica, director, AM Best, said, “If events were to escalate and impact energy prices, it is likely to affect opportunities for insurers in the region.

“Any wider escalation into the GCC region could affect energy prices, and may have repercussions for inflation globally.”

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