Conflict in the Middle East and disruption in the Strait of Hormuz may last only a “matter of weeks”, according to a baseline scenario from ratings agency Moody’s.
In an insurance sector analysis published on Wednesday, Moody’s said the credit impact of the Iran conflict on Gulf Cooperation Council (GCC) insurers is expected to remain limited in the near term, assuming the disruption proves relatively short-lived.
The ratings agency said it expects the conflict to last “a matter of weeks”, with shipping through the Strait of Hormuz and regional air traffic resuming at scale, helping contain immediate credit pressure on insurers across the region.
“Our baseline scenario is that the conflict will be relatively short-lived, likely a matter of weeks, and that navigation through the Strait of Hormuz and air traffic will then resume at scale,” Moody’s said.
Under this scenario, the agency added that GCC insurers would not face immediate material pressure on their credit profiles, even as markets react to geopolitical developments following US and Israeli strikes on Iran on 28 February.
Investment portfolios the main risk channel
Moody’s said the primary transmission channel for financial stress would come through investment portfolios rather than underwriting losses. Any disruption to regional economic activity could weigh on asset prices, particularly equities and real estate, which form a significant portion of insurers’ investment holdings.
“The primary transmission channel for any conflict-related disruption for GCC insurers would be through their investment portfolios rather than their underwriting performance,” Moody’s said.
Within Moody’s rated portfolio of GCC insurers, around 40 per cent of the capital risk charge relates to asset risk, with real estate and equity exposures accounting for roughly one-third of that total. The agency estimates that a 20 per cent decline in real estate and equity valuations would reduce rated companies’ total equity by around 7 per cent, a level it said most insurers could absorb given existing capital buffers.
Direct claims from the conflict are also expected to remain limited because war risk is typically excluded from standard insurance policies across the GCC, Moody’s added. War-related coverage is generally provided through international markets such as London, particularly for marine cargo and energy shipments moving through routes including the Strait of Hormuz.
Risks rise if disruption drags on
However, Moody’s cautioned that a prolonged conflict could begin to weigh more heavily on the sector.
A longer disruption could trigger sharper asset price declines, weaker investor sentiment and slower economic growth, undermining insurance premium growth — a key factor supporting the sector’s currently stable outlook — while increasing pricing pressure across the market.
If sustained, combined investment losses and weaker underwriting margins could erode capital buffers and potentially weaken insurers’ credit outlooks, the agency said.
Moody’s also noted that global reinsurers could face higher exposure, particularly in marine hull and cargo insurance, where accumulation risk can arise if war-covered vessels are immobilised or damaged in close proximity.