Moody's: The impact of the Iran conflict on Gulf insurance companies is limited
Global credit rating agency Moody’s has issued a recent report highlighting the financial resilience of the insurance sector in the Gulf Cooperation Council (GCC) countries in the face of current geopolitical tensions, predicting that the credit impact of the conflict related to Iran will be limited and short-term on insurance companies in the region, provided that the conflict does not escalate for extended periods.
Expected scenario: Temporary and limited disruption
The agency based its assessment on a baseline scenario assuming that any potential conflict would be relatively short-lived, likely lasting only a few weeks. According to this scenario, vital shipping traffic through the Strait of Hormuz—a crucial artery for global energy and trade—and civil aviation would largely resume normal operations shortly after any disruption or slowdown. Based on this assumption, the agency ruled out the possibility of Gulf insurers facing immediate and substantial pressures that would threaten their credit profiles or solvency.
The impact varies between large and small companies
The report highlighted a disparity in resilience among companies operating in the sector. Larger firms, characterized by diversified investment portfolios and relatively low exposure to high-risk assets such as real estate and equities, are in a stronger position and less vulnerable to volatility. In contrast, smaller companies face greater challenges, often having limited capital margins and higher exposure to stock and real estate market fluctuations, making them more susceptible to any sharp decline in asset values.
Financial stress tests and asset valuation
In its risk analysis, Moody's estimated that a hypothetical 20% decline in real estate and stock valuations would only reduce the total equity of its rated companies by about 7%. The agency emphasized that this decline is largely manageable, given that most of its rated insurers maintain sufficient capital margins and strong financial buffers built up over the years to absorb such shocks.
War risk exceptions protect the sector
From an operational and technical standpoint, the agency estimated that the direct impact of insurance claims arising from the conflict would be minimal. This is due to standard practices in the region's insurance sector, where "war risks" and military operations are typically excluded from standard insurance policies. This exempts companies from potentially substantial financial liabilities resulting from direct physical damage caused by the conflict, thus maintaining the stability of their balance sheets.
