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The recent escalation of the Middle East war introduces geopolitical instability with potential long-lasting effects on commodities, financing conditions, global supply chains, and macro-credit conditions depending on the duration and scale of the conflict.

S&P Global Ratings’ base case for the Middle East war assumes that elevated hostilities will persist into early April, with the Strait of Hormuz facing material disruptions. We continue to recognize the risk of spillovers and security incidents continuing beyond this period.

While market conditions have historically normalized quickly after geopolitical events, the current war appears distinct and some credit impacts are inevitable. The extent of those will depend on whether the effects remain localized or become more pervasive. Our initial assessment suggests that insurers and reinsurers will be able to manage the situation over the short term, but the scale and duration of the war will dictate the ultimate outcome.

(Editor’s note: S&P Global Ratings says there is a high degree of unpredictability around the duration and scale of the Middle East war and its potential effect on commodity prices, supply chains, economies, and credit conditions. As a result, its baseline forecasts carry a significant amount of uncertainty. As situations evolve, S&P will gauge the macro and credit materiality of potential shifts and reassess its guidance accordingly.)

Insurers and Reinsurers Could Face Challenges on Multiple Fronts

While standard insurance policies typically contain war and war-like exclusions, direct implications from the war could lead to rising insurance claims in specialty lines, including marine, aviation, energy, political violence, terrorism, war, and cyber. Property exposure in affected areas and policies covering supply chain or trade disruption could also increase insurance claims.

Secondary effects include investment performance implications from potential capital market volatility. Macroeconomic implications, such as rising inflation via increased energy prices and lower global growth due to supply chain disruptions and reduced consumer spending, could affect insurers’ business volumes, claims development, reserve adequacy, and reinvestment performance.

Robust Capital and Earnings Provide Protection for Global Reinsurers

The global reinsurance industry entered 2026 with a strong capital position, supported by robust underwriting performance and investment income. Global reinsurers, including most of the top 19, have limited direct asset exposure to the Middle East. In our view, their capital adequacy is sufficient to mitigate credit quality pressures stemming from the war.

However, liability-side risks could lead to losses and impair earnings. The war disproportionately affects specialty lines–a segment that insures complex or high鈥憆isk exposures, including war risk, aviation, energy, political violence, and other niche classes. These lines are more directly tied to events unfolding in the region, increasing the likelihood of significant claims activity.

Ultimately, the magnitude and effect of the war will depend on its duration, scale, and evolution, with loss development potentially unfolding over weeks or months. Reinsurers with large geographic footprints and significant exposure to specialty markets in the Middle East are most likely to be affected.

P&I Mutuals’ Current Net Exposure to the Middle East Is Limited

We expect most marine losses resulting from the war will fall under war risks cover. This is excluded from standard protection and indemnity (P&I) protection provided by the International Group of P&I clubs, covering approximately 90% of the world’s oceangoing tonnage.

P&I clubs provide excess war risk cover, limited to $500 million per vessel, which is fully reinsured under the clubs’ joint reinsurance program. Commercial war risk cover offered to non-mutual members is also typically heavily reinsured. Risks remain elevated for the clubs, particularly concerning potential losses related to crew welfare, repatriation costs, passenger liabilities, and injury claims, which fall within P&I coverage.

Claims of $10 million-$100 million are pooled among all members, while claims exceeding this level are supported by the group’s comprehensive excess of loss reinsurance program. Some marine clubs offer loss of hire cover, protecting shipowners against income loss when a ship is out of operation, but this is generally linked to physical damage and also heavily reinsured.

Despite several vessels sustaining damage, we expect losses will be limited, with reinsurer partners bearing most of the burden. We forecast that the P&I sector’s underwriting profitability will improve moderately over 2026-2027, compared with 2025-2026.

GCC Insurers’ Credit Conditions Remain Stable

Currently, it is premature to fully assess the financial effect of the war on the insurance sector within the Gulf Cooperation Council (GCC) region. The rapidly evolving situation and uncertainty about the war’s duration contribute to this challenge.

However, we do not anticipate significant war-related claims exposure for local insurers at this time. This is largely due to the high degree of reinsurance coverage typically in place for these lines of business, and the common exclusion of war-related risks from standard insurance policies.

Specialized policies covering war risks are generally fully reinsured in the global reinsurance market, resulting in local insurers maintaining either no, or relatively low and manageable, net exposures.

While short-term disruptions appear manageable, a prolonged effective closure of the Strait of Hormuz could significantly disrupt supply chains and increase costs, particularly for motor lines, which represent 20%-30% of total revenue. Conversely, a slowdown in business activity and reduced visitor numbers could decrease motor insurance claims, potentially offsetting inflationary pressures.

We expect underwriting profitability for GCC insurers will remain stable in 2026, mirroring levels seen in 2025. However, Saudi insurers’ operating performance may remain weaker than that of GCC peers due to the larger proportion of lower-margin medical business exposures. Ongoing volatility in capital markets remains the greatest risk to insurers’ credit conditions, with potential declines in real estate and equity markets eroding capital buffers.

Israeli Insurers Demonstrate Resilience

In the past two years, Israeli insurers delivered solid growth and improved technical results. Capitalization continued to strengthen, supported by resilient capital markets. Israeli insurers also benefit from a government scheme that is set to cover property insurance losses directly related to the war, as well as military life insurance claims. As a result, domestic insurers do not have to cover these risks.

That said, we are cautiously monitoring the most recent escalation of the war and its potential effect on the sector. We do not rule out secondary effects stemming from the situation, including increased capital market volatility and potentially weaker growth prospects.

In our view, the most immediate effect on insurers would be on their investment portfolios. If we were to lower the sovereign credit rating on Israel from currently “A/A-1,” we would also take rating actions on certain insurers in Israel. The outlook on our sovereign rating on Israel is stable.

African Insurers Are Largely Unaffected

Rising energy prices, supply chain disruptions, and global market volatility could increase claims costs, reinsurance expenses for certain business lines. If the war is short-lived, we forecast that African insurers’ creditworthiness will remain resilient in 2026 due to their generally strong individual characteristics and capital buffers.

However, if tensions persist, we expect African insurers will review and tighten pricing and underwriting policies across all business lines. In that case, capital and liquidity management would become critical as insurers stress-test solvency under inflation, currency swings, and financial market volatility.

Insurers with strong capital, diversified earnings, and disciplined asset-liability management are best positioned to navigate this uncertainty, while those with concentrated or weak capital positions could face more pressure.

Middle East War Fuels Cyber Risk

Cyber risk analytics firms have reported increased activity among threat actors and affiliated hacktivist groups since the outbreak of the war, including distributed denial-of-service attacks, phishing campaigns, and attempts to compromise corporate networks and critical infrastructure.

To date, there have been no publicly reported large insured cyber-related losses directly attributable to the Middle East war. So far, most incidents have caused service or system disruptions without generating significant insured losses. However, the situation remains fluid and could escalate, particularly after the conclusion of physical warfare.

Cyber insurance policies generally exclude losses resulting from wars between sovereign states. That said, attributing cyberattacks is often difficult, especially when carried out by proxy groups or actors receiving indirect support from sovereign states. This leads to coverage uncertainty and potential disputes.

From a rating perspective, our focus remains on insurers’ risk management practices, portfolio diversification, and operational resilience. Recent cyberattacks linked to geopolitical tensions have not yet affected insurers’ credit profiles, but a sustained escalation of malicious cyberactivity or a large systemic cyberattack could increase claims volatility and test policy interpretations, particularly where attribution remains uncertain.

The Middle East war highlights the increasing interconnection between cyber risk, geopolitics, and insurance. It reinforces the importance of clear policy language, prudent underwriting, and robust operational safeguards to maintain portfolio resilience.

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