Some analysis from Wealth Club and DBRS below, but let’s think about the likely scenarios from an insurance point of view;
Marine/Hull/Cargo rates rocket, cover withdrawn already on traffic in the Straits of Hormuz. That is likely to spread to other regions as pro-Iranian/Jihad factions carry out attacks on shipping, ports, military bases, power infrastructure etc.
Supply interruption cover for business suspended or just gets expensive by region, as shipping and air freight is re-routed
Air freight cargo insurance set to rise maybe 10-15% short term
New UK and EU regulations on drones and drone insurance likely rushed through, as politicians finally wake up to the threat at home
Governments borrow more, print more money, inflation probably peaks in about 12-15 months, even if a peace deal is reached between the US and Iran this summer
Expat medical cover rates will rise in MENA/Gulf region
Various Tech/Insurance/Data Conferences cancelled in Gulf region for the rest of the year
Overseas medical repatriation for EU/UK travellers will double in price for holidays from Turkey all the way across to Thailand/China – where are the flights going to go, across Russia rather than the Middle East?
Drop a comment below if you think IE missed anything
Meanwhile here’s the word from Wealth Club;
- Brent crude jumps 9% as widening conflict in the Middle East raises supply concerns.
- Prices at the pumps set to increase, causing fresh inflationary worries.
- Investors shelter in safe havens, with gold and silver prices rising.
- Airlines and financial stocks bear the brunt of the equity sell-off.
- FTSE 100 falls in early trade but remains relatively resilient given its make-up, with energy, defence and mining stocks rising.
- S&P 500 set to trade sharply lower, while a chill continues across the crypto market.
Susannah Streeter, Chief Investment Strategist, Wealth Club:
”Investors are scuttling towards safe havens, seeking shelter as conflict widens in the Middle East. As attacks on Iran continue, Tehran is targeting US allies across the Gulf region in retaliatory strikes, including an RAF station in Cyprus, while Israel is targeting Hezbollah bases in Lebanon. The escalation is sending a shiver through financial markets, intensified by a sharp rise in oil prices. Brent crude has surged at the fastest rate in four years, rising almost 10% to around $80 a barrel.
Higher energy prices pile costs onto companies, and there appears to be no immediate escape valve for prices. Iran has already cut off the Strait of Hormuz to shipping companies, an essential passage for around one-fifth of the world’s oil and gas. While some Iranian and Chinese ships are reportedly still passing through, attacks on British and US tankers are a stark warning of the danger of taking this route. The effective closure of the Strait constrains crucial supplies from the Gulf, which is why prices have risen so sharply.
It will come as a blow to households, who will see prices at the pumps rise significantly. It also adds another layer of uncertainty over future interest rate cuts, given that higher fuel prices will put upward pressure on headline inflation.
Precious metals prices have ratcheted up again, with gold and silver increasingly sought after in these turbulent times. Gold has reached a one-month high, after recording its seventh consecutive monthly gain in February – the best winning streak since 1973. Back then, a severe oil shock led to a flight to safe havens. While oil prices have increased sharply, this is not yet mirroring the 1970s surge, when prices effectively quadrupled in just a few months after Gulf countries retaliated against US support for Israel in the Yom Kippur War.
However, with tensions escalating and uncertainty so high, it is far from clear how this current conflict will evolve, and prices could climb even higher. This time around, other worries are also colliding to push up precious metals prices, including high debt levels, concerns over the Federal Reserve’s independence, and questions about the sustainability of the artificial intelligence boom.
The FTSE 100 has fallen back in early trade, as the shock of war hits investor sentiment. Airline stocks have been sideswiped by the conflict, with the closure of airspace across large swathes of the Gulf causing significant disruption. Not only will the immediate chaos be costly, with so many stranded passengers and route closures, but the dent to confidence among the travelling public may also hit demand for holidays and business travel elsewhere.
Financial stocks are also sharply lower, as investors worry about the implications of prolonged fighting for economies, the potential drag on demand for borrowing, and the increased risk of loans turning bad.
However, London’s blue-chip index looks set to hold up better than some of its peers due to the resilience of its constituents in the face of heightened global tensions. Mining stocks are benefiting from the surge in precious metals prices, while oil giants BP and Shell have also risen sharply as oil prices climb. Demand for defence stocks has increased again as military spending looks set to deepen further.
With risk-off sentiment taking hold, the S&P 500 is expected to open 1.5% lower, with investors also seeking cover on Wall Street. Bitcoin is languishing at levels not seen for around 17 months, as a chill continues to pervade the crypto market amid heightened global uncertainty.”
DBRS MORNINGSTAR
Escalating hostilities in the Middle East have halted shipping transits, grounded flights across major regional hubs, and raised the risk of missile strikes on commercial infrastructure, increasing underwriting uncertainty across multiple insurance lines. From a credit perspective, higher premiums may provide short-term earnings support but are offset by elevated aggregation risk, tighter reinsurance capacity, and potential correlated losses in marine, aviation, property, and specialty lines. Prolonged disruption to energy flows and global transport networks could also increase financial market volatility, affecting insurers’ investment portfolios and capital buffers.
Key highlights include the following:
— Escalating hostilities involving Iran have disrupted Gulf airspace and shipping, prompting war risk policy cancellations and sharp premium repricing for Hormuz transits.
— Marine, aviation, property, travel, and supply chain insurance lines face heightened underwriting volatility and aggregation risk.
— Prolonged transport disruption and market volatility could pressure earnings and capital for insurers with concentrated specialty exposures.
“The Iran conflict adds to a series of recent geopolitical crises that have already pressured the profitability of marine and aviation insurers. While surging war risk premiums may support earnings, the concentration risk in narrow corridors, such as the Strait of Hormuz, and the risk of simultaneous losses across multiple lines increase underwriting volatility,” said Marcos Alvarez, Managing Director, Global Financial Institution Ratings. “Companies with diversified geographic and product mixes can absorb shocks better than those focused on Middle Eastern risks. Nevertheless, we will continue to monitor accumulation exposures, reinsurance programs, and liquidity management across our rated portfolio.”
MARSH
Comment from Dylan Mortimer, Marine Hull UK War Leader, Marsh:
“The primary risks centre on the Persian and Arabian Gulf, particularly the threat of vessel boarding and seizure by Iranian forces and the closure of the Strait of Hormuz.
It is very early to tell at this point, but we would estimate that near-term rate increases for Marine Hull insurance in the Gulf could range from 25 to 50 percent, barring any direct attack on Merchant shipping, which could have major repercussions across war insurance rates. Given the military build-up in the region, crew are far more likely to be concerned than they might have been to previous risks. The situation remains very fluid, requiring ongoing attention.”
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