Demand for Political Violence and Terrorism cover has risen sharply, particularly among Western operated assets in the Gulf, with pricing multiples increasing and underwriting becoming more selective. Aviation, cyber and trade related lines are also seeing elevated risk assessments as the conflict spills across borders and supply chains, said Andrew Foot, Managing Director, Howden Re
London:The effective closure of the Strait of Hormuz following escalating conflict in the Middle East has put risk premia across the (re)insurance sector in flux, with impacts extending well beyond marine war risk into energy, political violence, aviation, trade credit and the wider macroeconomic environment, according to analysis from Howden Re said
Demand for Political Violence and Terrorism cover has risen sharply, particularly among Western operated assets in the Gulf, with pricing multiples increasing and underwriting becoming more selective. Aviation, cyber and trade related lines are also seeing elevated risk assessments as the conflict spills across borders and supply chains, said Andrew Foot, Managing Director, Howden Re, said.
“While much of the headline attention has focused on shipping and the associated losses seen to date, the impact on the energy industry is far more complex. Infrastructure strikes, precautionary shutdowns and prolonged outages create significant business interruption exposure, much of which may sit outside traditional war risk coverage. This is a highly correlated risk environment that was previously considered tail risk,” he added.
Marine war risk markets have experienced mass cancellations and extraordinary premium increases, with coverage shifting almost entirely to voyage-by-voyage placement. Energy insurers are facing growing exposure from infrastructure damage and business interruption across downstream, offshore and LNG facilities in the Gulf region, highlighted David Flandro, Head of Industry Analysis and Strategic Advisory at Howden Re,
He further elaborated that the most immediate impacts are currently evident in political violence/war, marine and energy risks, but the bigger issue for the industry may ultimately come through what we describe as the macro transmission channel.
“ A sustained disruption in the energy supply would raise the risk of renewed inflationary pressure, higher interest rates and the potential for broader sector capital impairment. That combination could affect insurance capacity more materially than insured losses from individual vessels or infrastructure claims,” explained Flandro.
Richard Miller, Managing Director, Howden Re, said: “Political Violence capacity is still available, but underwriting discipline has tightened considerably. Insurers are focusing closely on aggregation, war terrorism boundaries and the interaction between local policies and global reinsurance treaties. The key question is no longer whether capacity exists, but how it is deployed and structured.”
While insured losses in trade credit and political risk lines have so far been limited, prolonged disruption to shipping routes and energy markets could materially increase default and nonpayment risk.
Phil Bonner, Head of Global Specialty Treaty, Howden Re, said: “The Credit and Political Risk market has remained resilient through recent geopolitical shocks, but the situation in the Strait of Hormuz has significant potential impact. What was previously a stable, dependable line is now moving firmly into strategic focus, as insurers and reinsurers reassess counterparty exposure, supply chain disruption and sovereign risk. We expect a more selective deployment of capacity and a greater emphasis on aggregation and event definition as the market adjusts to a more complex risk environment.”
Sean Riordan, Managing Director, Credit & Financial Risk, Howden Re, said: “Maintaining safe and open transit through the Strait of Hormuz is critical to global trade flows and the stability of the broader credit system. A sustained disruption would be expected to manifest initially as credit and liquidity stress, affecting payment performance, letters of credit, and contractual obligations.”
For insurers and reinsurers, the key variables are duration and security: how long disruption persists and how effectively routes are protected. These factors will ultimately determine whether credit stress remains contained or translates, over time, into claims across trade credit, sovereign credit, and political risk portfolios,he stressed.
The Strait is a critical global chokepoint, through which approximately 20% of the world’s oil supply and a significant share of liquified natural gas flows daily. Recent events have led to widespread disruption to maritime traffic, sharp increases in war risk premiums and the rapid withdrawal and repricing of insurance capacity across multiple lines.
Despite the severity of current conditions, Howden Re’s analysis suggests the reinsurance market remains well capitalised and engaged, with no expectation of a broad-based market withdrawal. The response is likely to be characterised by targeted repricing, tighter terms and increased focus on aggregation and structure, particularly for midyear renewals.
David Flandro added: “This is, nevertheless, a reminder that geopolitical risk can propagate through insurance markets far faster than traditional loss development models assume. Technical discipline, transparency and active monitoring are essential in this environment.”