Escalating tensions in the Middle East are not expected to trigger immediate credit pressures for global re/insurers, but if the conflict continues, it could have wider market implications, according to a new commentary from ratings agency AM Best.

The report said the short-term impact on the credit quality of the sector has so far been low, with losses to global reinsurers likely to take the form of isolated large events rather than systemic losses.

However, analysts warned that the longer the conflict continues, the greater the chances for knock-on effects across the global economy, including higher energy prices, supply chain disruption and more inflation.

Mahesh Mistry, senior director and head of analytics at AM Best’s London office and the main author of the commentary, said the broader economic fallout could eventually place pressure on insurers’ balance sheets.

“While AM Best does not anticipate any rating actions in the short term, much will depend on the length of the conflict,” he said.

“If it were to last several months, then the impact on global and regional economies is likely to be significant in terms of oil and gas prices, supply chain disruptions and inflationary pressures. These multiple points of pressure will affect both global and regional insurance companies.”

The commentary noted that the conflict has already driven volatility in oil and gas markets and disrupted shipping routes through the Strait of Hormuz, one of the world’s most important energy corridors.

Insurance lines most directly affected include marine, aviation, trade credit, political risk and business interruption coverage, with marine insurers already raising rates and identifying high-risk zones from the Strait of Hormuz to the Suez Canal.

While regional insurers typically do not have much exposure to large commercial risks — which are usually heavily reinsured — the situation could influence reinsurance pricing and terms if it goes on.

AM Best said renewals could become key, with reinsurers potentially revisiting pricing, commissions and policy terms according to the new risks.

The report also pointed to a potential government role in stabilising insurance markets.

Sridhar Manyem, senior director of industry research and analytics at AM Best’s headquarters in Oldwick, New Jersey, pointed to a recent proposal from the US International Development Finance Corporation to support shipping insurance.

“The [DFC] has stated that it is mobilising its political risk insurance and guaranty products and that Chubb will act as the lead underwriter,” he said.

“While further announcements are expected, the actual mechanics, structure and implementation of the proposal are not clear yet. AM Best is of the opinion that the impact of the scheme can only be assessed when more clarity is provided by the DFC.”

The agency said geopolitical tensions could also increase cyber risk as state-sponsored actors escalate attacks. This could potentially drive demand for cyber insurance, too.

For now, AM Best said the reinsurance sector’s strong capital position and risk management should allow it to absorb potential losses.