Iran Conflict Amplifies Insurance Risk, Losses Likely Manageable: Moody's

Insurers and reinsurers that provide coverage of complex risks such as marine, aviation and political violence are likely to face outsized claims as a result of the ongoing Iran conflict, said Moody's Ratings.

The insurance service providers are also benefiting from an increase in the price of political violence and terrorism (PVT) coverage amid rising demand from businesses looking to protect assets in the conflict-hit Gulf region.

The rating agency also expects losses to be manageable for large, diversified insurers - thanks to their careful risk selection, aggregate claims limits and reinsurance protection. 

"War exclusion clauses will also provide some insulation, although these will likely face legal challenges in some cases," Moody's said.

According to Moody's, the conflict will be relatively short-lived, likely a matter of weeks, and navigation through the currently blocked Strait of Hormuz, a key transit route for oil tankers, will then “resume at scale.”

The duration of the conflict is an additional risk factor, with longer hostilities increasing the likelihood of larger and more complex loss scenarios. 

Also Read: Oil Climbs As Iran Steps Up Attacks On Gulf Shipping

The concentration of high-value assets in the Gulf region increases the potential for loss accumulation relative to other recent episodes of increased geopolitical tension, such as the Russia-Ukraine conflict.

According to data, vessels transiting the Strait of Hormuz have reduced drastically since the conflict began in late February.

Aviation insurers also face similar challenges. Although the recent resumption of flights from some major regional airports has improved the outlook for them. 

"Airspace closures and missile activity have increased the risk of damage to aircraft on the ground. The potential for aggregate losses - where a single event triggers multiple claims - has also risen at major airports, as has the risk of passenger fatalities," the rating agency noted.

"Overall, we expect aviation losses to be contained in most scenarios. This is because insurers can reprice risk quickly, have strong risk limits and accumulation controls and benefit from reinsurance protection. However, a prolonged conflict would raise the probability of multi-asset losses and more complex claims development, especially with large numbers of aircraft at airports vulnerable to attack," said the report.