The escalating conflict involving Iran has triggered a sharp surge in war-risk insurance premiums for shipping and aviation across the Gulf, but the overall financial impact on insurers in the GCC is likely to remain limited for now, according to Moody’s Ratings.
The ratings agency said the credit outlook for GCC insurers remains stable in the near term, largely because the conflict is expected to be relatively short-lived. Moody’s baseline scenario assumes hostilities will last only a few weeks, allowing navigation through the Strait of Hormuz and regional air traffic to gradually return to normal.
“We expect the near-term credit impact of the Iran conflict on insurers in the GCC to be limited,” Moody’s analysts Mohammed Ali Londe and Brandan Holmes said in a report. “Our baseline assumption is that the conflict will be relatively short-lived, likely a matter of weeks, after which navigation through the Strait of Hormuz and air traffic will resume at scale.”
Under this scenario, the agency said insurers in the UAE, Saudi Arabia, Qatar and other Gulf markets are unlikely to face significant immediate pressure on their credit profiles.
However, the conflict has already pushed insurance costs sharply higher for ships and aircraft operating in the region, reflecting heightened geopolitical risks.
War-risk insurance premiums for vessels sailing through the Strait of Hormuz — a vital chokepoint that handles roughly one-fifth of global oil shipments — have surged several-fold since the conflict began, according to shipping industry estimates. In some cases, the additional insurance costs for a single voyage have risen from tens of thousands of dollars to several hundred thousand dollars.
Airlines operating across the Gulf have also faced rising insurance costs as airspace closures and missile threats forced carriers to suspend or reroute flights across parts of the Middle East.
Despite these spikes in specialised war-risk coverage, Moody’s said the direct claims impact of the conflict on GCC insurers is likely to remain negligible.
“The direct claims impact of the conflict will likely be minimal for GCC insurers, as war risk is typically excluded from standard insurance policies in the region,” the agency said.
Such risks are usually covered by specialised war-risk policies underwritten by global insurers — primarily in the London market — which insure energy infrastructure, cargo shipments and vessels operating in vulnerable shipping routes such as the Strait of Hormuz and the Red Sea.
Moody’s noted that global insurers and reinsurers active in the region face greater exposure to potential losses from attacks on ships, energy facilities or commercial assets. However, the widespread use of war exclusions in insurance policies should materially limit ultimate claims.
Within the GCC, the biggest impact for insurers is likely to come indirectly through financial markets rather than insurance payouts.
Insurance companies typically invest large portions of their premium income in assets such as equities, bonds and real estate. Any sharp decline in regional asset prices triggered by the conflict could therefore affect insurers’ balance sheets.
“The primary transmission channel would be through insurers’ investment portfolios rather than their underwriting performance,” Moody’s said.
According to the agency, about 40 per cent of the capital risk exposure for rated GCC insurers is linked to investment assets, with real estate and equities accounting for roughly one-third of that risk.
Moody’s estimates that a 20 per cent decline in property and equity valuations could reduce the total equity of rated insurers by around 7 per cent. However, the agency said most large insurers in the region have sufficient capital buffers to absorb such losses.
“Most rated insurers have adequate capital buffers that would allow them to absorb moderate asset valuation declines,” Moody’s analysts said.
The risk profile is more challenging for smaller insurers, which tend to have thinner capital cushions and higher exposure to property and equity investments.
These companies could be more vulnerable if financial markets weaken sharply or if economic conditions deteriorate across the region.
Moody’s warned that risks to the sector would rise significantly if the conflict becomes prolonged or expands beyond its current scope.
“Second-round pressures would intensify if the disruption persists or if attacks escalate across GCC countries,” the agency said.
A prolonged conflict could lead to deeper declines in regional asset prices, weaker investor confidence and slower economic activity across the Gulf — all of which would affect insurers’ balance sheets.
Premium growth, which has been a key driver of the GCC insurance sector’s expansion in recent years, could also slow in a weaker economic environment.
“A deceleration in premium growth would likely intensify competitive pricing pressures as insurers compete for a smaller pool of business,” Moody’s said.
Combined with potential investment losses, such pressures could gradually erode capital buffers and weaken the sector’s credit outlook if the conflict drags on.
However, Moody’s believes the region’s insurers remain well positioned to absorb the initial shock, provided hostilities remain contained and global trade routes through the Gulf resume normal operations in the coming weeks.
