Iran-US Conflict Escalates Risk Exposure

Marine insurance is among the most exposed sectors because vessels and cargoes continue to move through areas affected by missile strikes and military activity. Insurers moved quickly to adjust coverage. On March 5, marine insurers issued notices cancelling or repricing hull and cargo war-risk policies that protect ships against damage caused by acts of war.

The policies were quickly reinstated in many cases but with higher premiums and more restrictive terms. More than 1,000 vessels operating in the Persian Gulf are insured through the London market with a combined insured value exceeding $25 billion.

One of the biggest risks involves ships becoming stranded if the conflict disrupts shipping lanes for extended periods. “War risk policies generally include ‘blocking and trapping’ provisions that allow a total loss claim after a prolonged period of detention,” Moody’s said.

Historical precedents such as the Iran-Iraq war and the Russia-Ukraine conflict show these situations can lead to complex claims and legal disputes over timing and aggregation of losses.

Shipping liability risks are also rising. Protection and Indemnity clubs, the mutual insurers that cover shipping liabilities such as oil spills, have reduced Gulf war-risk liability limits to $250 million per event, forcing shipowners to retain more risk themselves.

Aviation insurers face a different set of risks, particularly aircraft damage at airports across the region. “Airspace closures and missile activity have increased the risk of damage to aircraft on the ground,” Moody’s said.

The concentration of aircraft at large regional airports raises the risk that a single incident could generate multiple claims. Aviation war policies allow insurers to cancel coverage or adjust pricing quickly, giving companies flexibility to manage exposure.

Most insurers have so far maintained coverage while closely monitoring developments. Moody’s said the situation differs from the aviation insurance losses following the Russia-Ukraine conflict, when around 400 aircraft valued at more than $10 billion were stranded in Russia.

In the Middle East crisis, the primary threat is physical damage from attacks rather than aircraft detention.

Insurance covering political violence and terrorism — known as PVT cover — is also seeing rising demand. Businesses operating in the region are increasingly seeking protection against missile strikes, sabotage and other attacks on infrastructure.

“Demand for this cover has been rising in response to the conflict, at significantly increased prices,” Moody’s said. Higher premiums support insurers’ revenues but also increase potential exposure if the conflict intensifies.

Legal uncertainty may complicate claims because policies often exclude acts of war while covering terrorism or civil unrest. “The distinction between war, terrorism and civil commotion is frequently contested,” Moody’s said, raising the possibility of litigation over how losses are classified.

One of the first large loss notifications has already emerged from Bahrain’s Bapco Energies following attacks on its refinery complex.

Despite the growing risks, Moody’s expects large global insurers and reinsurers to withstand the shock unless the conflict becomes prolonged. Their ability to absorb losses depends on several factors:

However, the longer the conflict lasts, the greater the chance of complex claims involving multiple sectors. “Longer hostilities increase the likelihood of larger and more complex loss scenarios,” Moody’s said.

If fighting subsides and shipping through the Strait of Hormuz resumes, the insurance industry is likely to contain the financial impact. But an extended conflict could trigger broader claims across marine, aviation, energy and cyber insurance markets, testing the resilience of global specialty insurers.