Howden Re has warned of the potential for the closure of the Strait of Hormuz to affect the broader reinsurance market.

The effect of the escalating conflict in the Middle East has already been somewhat broad-based, extending war risks into energy, political violence, aviation, trade credit and the wider macroeconomic environment, according to analysis from the global reinsurance broker and adviser.

Some 20 per cent of the world's oil supply and a significant share of liquefied natural gas flows daily through the critical global choke point.

A news and insights post from the group stated: “Recent events have led to widespread disruption to maritime traffic, sharp increases in war risk premiums and the rapid withdrawal and repricing of insurance capacity across multiple lines.

“Howden Re's analysis highlights that this is not only a single line loss event, but a scenario with the potential to affect the broader sector, unfolding in real time and testing the resilience of the global risk transfer market.”

Despite the severity of current conditions, Howden Re's analysis suggests the reinsurance market remains well capitalised and engaged, with no expectation of a broad-based market withdrawal.

The response, the company said, is likely to be characterised by targeted repricing, tighter terms and increased focus on aggregation and structure, particularly for midyear renewals.

David Flandro, head of industry analysis and strategic advisory said: “The most immediate impacts are currently evident in political violence/war, marine and energy risks, but the bigger issue for the industry may ultimately come through what we describe as the macro transmission channel.

“A sustained disruption in the energy supply would raise the risk of renewed inflationary pressure, higher interest rates and the potential for broader sector capital impairment. That combination could affect insurance capacity more materially than insured losses from individual vessels or infrastructure claims.”

Marine war risk markets have experienced mass cancellations and extraordinary premium increases, with coverage shifting almost entirely to voyage-by-voyage placement.

Energy insurers are facing growing exposure from infrastructure damage and business interruption across downstream, offshore and liquefied natural gas facilities in the Gulf region.

Andrew Foot, managing director, Howden Re, said: “While much of the headline attention has focused on shipping and the associated losses seen to date, the impact on the energy industry is far more complex. Infrastructure strikes, precautionary shutdowns and prolonged outages create significant business interruption exposure, much of which may sit outside traditional war risk coverage. This is a highly correlated risk environment that was previously considered tail risk.”

Demand for political violence and terrorism cover has risen sharply, particularly among Western operated assets in the Gulf, with pricing multiples increasing and underwriting becoming more selective. Aviation, cyber and trade related lines are also seeing elevated risk assessments as the conflict spills across borders and supply chains.

Richard Miller, managing director, Howden Re, said: “Political violence capacity is still available, but underwriting discipline has tightened considerably. Insurers are focusing closely on aggregation, war terrorism boundaries and the interaction between local policies and global reinsurance treaties. The key question is no longer whether capacity exists, but how it is deployed and structured.”

While insured losses in trade credit and political risk lines have so far been limited, prolonged disruption to shipping routes and energy markets could materially increase default and non-payment risk, the company said.