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The Middle East conflict: Its impacts on re/insurers and how it’s being managed
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The Middle East conflict has evolved into a systemic risk event with far-reaching impacts on the global economy and industries. Macroeconomic and supply chain shocks reverberating from the conflict have not spared the re/insurance industry. With a prolonged conflict, the impacts from inflation, energy market crises and supply chain disruptions are likely to influence pricing, claims, underwriting performance, growth expectations and risk accumulation for insurers and reinsurers.
This article examines how inflationary pressures, supply chain disruptions and systemic risk accumulation arising from the conflict have impacted the re/insurance industry and possible measures to manage it.
Approximately 15% to 20% of the global supply of oil and liquefied natural gas passes through the Strait of Hormuz, which has become a chokepoint, sharply driving up energy prices and triggering inflationary pressures worldwide [1] . A prolonged conflict is expected to dampen global economic growth by 1 to 2 absolute percentage points and increase global inflation by 2 to 3 absolute percentage points [2] . A sharp increase in insurance premiums related to specialty classes like marine, aviation, trade credit, and political violence and terrorism, and the withdrawal of war risk coverage have contributed to a sharp rise in oil, gas and freight costs.
Governments around the world have responded to the increase in oil prices by releasing oil reserves, managed the disruption in oil supplies by rationing local oil distributions, and addressed inflationary pressures by providing relief packages. Even if the blockade at the Strait of Hormuz is lifted and normal ship movement is resumed, it is expected to take months before the impact on global economy and industries is contained [3] . With a volatile situation on the ground, there is significant uncertainty in predicting economic consequences that will impact the re/insurance industry.
Inflation is one of the critical factors affecting insurance portfolios. For property, with the increase in fuel prices, the transportation cost of building materials is likely to increase. Therefore, claims associated with repairs and reconstruction can be expected to rise.
For motor, increases in repair cost and the value of spare parts, particularly with supply chain disruptions, are likely to adversely impact claims severity. On the flip side, with the sharp increase in oil prices, many governments and private sectors have opted for working from home arrangements to reduce fuel consumption. Therefore, less vehicle traffic on roads will help to reduce motor claims frequency, favouring insurers.
For trade credit, increasing cost concerns arising from inflationary pressures, slower growth and economic uncertainty increase the risk of insolvency, which can lead to an increase in claim frequency, particularly in vulnerable sectors such as transportation and manufacturing.
Moreover, the propensity for fraudulent claims across classes of business can increase, forcing re/insurers to be even more vigilant for such claims.
Re/insurers have responded fast with a sharp increase in premiums related to speciality classes, which are directly impacted by the conflict. However, for classes of business that are indirectly impacted, premium adjustments can often lag claims inflation.
In tariffed markets, inability or limited flexibility to adjust premiums is likely to impact underwriting results. In such markets, claim inflation and inadequate premiums can be a double whammy. Moreover, competitive pressures may prevent insurers from passing additional costs to consumers.
Pricing becomes challenging with uncertainty and stressed conditions arising from the conflict. Inflation uncertainty is harder to price, particularly for long-tail classes. Pricing that relies on historical loss experience to be a reasonable representation of future trends may no longer be valid under stressed conditions, particularly for reinsurance treaties.
In the immediate aftermath when the conflict broke out, some re/insurers with exposure to the directly impacted region or covering speciality classes reacted by issuing Notice of Cancellations (NOCs). Typically, war risk is excluded from run-of-the-mill reinsurance treaties. Even for policies with war risk coverage, re/insurers have responded with sharp increases in war risk premiums and tighter terms and conditions. Moreover, capacity constraints have been observed with speciality classes [4] .
Urea, phosphate, ammonia, and sulphur, which are by-products from hydrocarbon processing, are raw materials used in fertiliser production [5] . The Gulf region is a major supplier of fertiliser inputs, industrial feedstocks, polymers and aluminium. Disruptions to shipping through the Strait of Hormuz are constraining supply chains with far reaching consequences for manufacturing sectors and agriculture. For re/insurers, supply chain disruptions to these critical inputs increase the risk of business interruption contingent claims, particularly in manufacturing sectors where production may be severely affected due to the unavailability of raw materials.
Nowadays, insurers are shifting from traditional static pricing and annual renewals to regular, personalised dynamic pricing to enhance competitiveness [6] . Insurers with such agile pricing systems can incorporate real-time inflation signals into pricing.
Even though the impact of claim inflation on indirectly affected classes may not be visible in the claims experience yet, it is prudent for insurers to monitor leading inflation indicators and collaborate with supply chain partners, such as ensuring the availability of motor spare parts and building materials. Scenario analysis may be a helpful tool to assess different future outcomes and develop plans for how re/insurers may respond.
Reinsurers need greater focus on the impact of inflation on pricing, particularly for long-tail classes, where inflation uncertainty is harder to price. For proportional reinsurance treaties, reinsurers may have more influence over how inflation is incorporated into premium rates and respond appropriately to meet their target margins.
With increasing geopolitical risks affecting interlinked global supply chains, the impact of supply chain disruptions on insurance portfolios can’t be ignored. Reinsurers can use third-party intelligence sources on corporate interdependencies to help identify and manage risk from supply chain disruptions [7] . Moreover, it is timely to incorporate supply chain risk assessments into underwriting decision-making.
Even though capacity is available relatively easy in the prevailing soft market conditions with global reinsurance capital at the highest levels, reinsurers can take precautions with selective capacity deployment, particularly in the directly affected regions and speciality lines.
With the conflict evolving into a systemic risk event, exposure accumulation is a major concern for re/insurers. For example, grounded aircraft in the Gulf region, combined with the risk of military strikes on airports, increases the aviation ground accumulation risk [8] . Multi-line exposures complicate traditional risk modelling approaches and warrant enhanced scenario analysis and modelling to better understand and manage exposures. Reinsurers also need greater focus on geopolitical risk modelling.
In the long run, automation and AI adaptation are likely to help improve operational efficiencies and reduce internal costs. The conflict can be a catalyst to embark on such initiatives. This is particularly important for tariffed markets where premium inadequacy to reflect claims inflation is a concern impacting underwriting results.
As governments encourage maintaining market stability and economic activity, reinsurers can work with governments in areas where risks are less attractive to private markets. Recent examples include a US government-backed marine facility with an increased capacity of USD 40 billion for ships transiting the Strait of Hormuz [9] and an India government’s consideration on a USD1.5 billion facility to support Indian vessels travelling through conflict zones [10] . Moving forward, such initiatives can form a framework for future collaboration needs like government-backed natural catastrophe facilities.
As the Middle East conflict has shown, geopolitical risks can no longer be treated in isolation as they are evolving into systemic risk events with far-reaching consequences for the global economy and industries.
The conflict underscores the impact of inflationary pressure, supply chain disruptions and systemic risk on pricing dynamics, claims, underwriting performance, growth expectations and risk accumulation for the re/insurer industry. Re/insurers that act early on the measures outlined here will be better positioned to navigate the uncertainty ahead.
[1] https://www.spglobal.com/ratings/en/regulatory/article/global-economic-outlook-q2-2026-middle-east-war-dents-the-forecast-s101677805
[2] https://www.reinsurancene.ws/reinsurance-at-the-forefront-as-iran-conflict-drives-global-energy-shock-peak-re/?utm_source=chatgpt.com
[3] https://www.pmo.gov.sg/newsroom/pm-lawrence-wong-on-the-situation-in-the-middle-east-apr-2026/
[4] https://www.reinsurancene.ws/howden-re-highlights-broader-market-impacts-as-gulf-conflict-disrupts-energy-supply/
[5] https://www.oliverwyman.com/our-expertise/insights/2026/mar/how-middle-east-tensions-impact-supply-chain.html
[6] https://www.sia-partners.com/en/insights/publications/dynamic-personal-pricing-modeling-insurance
[7] https://data.bloomberglp.com/professional/sites/10/125966_BBGT_QUANT_SupplyChain_SFCT_DIG-1.pdf
[8] https://www.globalreinsurance.com/home/iran-conflict-war-amplifies-specialty-insurance-tail-risk-says-moodys/1457994.article
[9] https://www.reinsurancene.ws/dfc-and-chubb-reveal-new-partners-for-expanded-maritime-reinsurance-plan/
[10] https://www.reinsurancene.ws/india-reportedly-considering-1-5bn-reinsurance-fund-for-vessels-travelling-through-conflict-zones/
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