While the most recent period of military action in the Middle East presents a range of potential geopolitical risk exposure for the insurance industry, the direct impacts will largely be limited by war exclusions and narrowly defined policy triggers, according to a new AM Best report.

The Best’s Commentary, titled “Latest Middle East Turmoil Generates Additional, Familiar Exposures for Insurers; Regional Economy May Feel the Broader Brunt,” notes that thus far, there has been no ratings impact for AM Best-rated insurers operating in the region. If tensions escalate, there is a potential impact for insurers who underwrite political risk, trade credit and war risk coverages in the Middle East region.

“Disputes over exclusions may arise from ambiguous policy language, particularly in relation to business interruption claims, where coverage and causality may be contested,” said Mahesh Mistry, senior director, AM Best. “For example, port closures, logistical delays, and production halts could potentially trigger business interruption claims.”

AM Best also notes in the report that a significant impact is evident in the aviation and marine insurance specialty markets. Premiums for ships operating in the Persian Gulf region, particularly through the Strait of Hormuz, have risen sharply to reflect the elevated risk. Aviation insurers have similarly raised rates for carriers flying near the conflict zones.

Many countries in the Gulf Cooperation Council (GCC) region are heavily reliant upon the hydrocarbon sector to drive economic growth, according to the report. The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. AM Best maintained its stable outlook on the GCC in April, but notes that this region could be adversely impacted by second-order effects. “If events were to escalate and impact energy prices, it is likely to affect opportunities for insurers in the region,” said Ann Modica, director, AM Best. “Any wider escalation into the GCC region could affect energy prices, and may have repercussions for inflation globally.”

To access the full copy of the Best’s Commentary on the Middle East, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=355185.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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