Middle East: S&P says insurers currently broadly unaffected by Israel-Hamas conflict

The Israel-Hamas war is expected to continue over 2024, and Gaza will remain the epicentre, with continued pressure on Israel (AA-/Negative/A-1+) from Iran (unrated) and its proxies, according to S&P Global Ratings (S&P).

However, Israeli insurers, Gulf region insurers, and European insurers are not currently materially affected, the global credit rating agency said.

In a commentary on 17 April, S&P says that from a geopolitical perspective, although Iran’s missile attack on Israel opens up a new stage with state-to-state confrontation, the advanced signalling and coordination support S&P’s base-case assumption that the conflict will not turn into a full-blown regional war.

Gulf Region Insurers

S&P expects credit conditions for rated insurers in Gulf Cooperation Council (GCC) countries to remain broadly stable in 2024, supported by robust capital buffers and adequate growth and earnings prospects. Most rated GCC insurers—many of which are among the largest entities in the market—are well capitalised; this supports S&P’s strong financial strength ratings on them.

A full-scale conflict between the states in the Middle East is not part of S&P’s base-case scenario. In S&P’s view, such a conflict would be economically, socially, and politically destabilising for the entire region, including insurance markets. Growth prospects and earnings of regional insurers could be negatively affected by adverse macroeconomic effects on trade, financial flows, and tourism. If a wider or prolonged conflict were to develop, against expectations, S&P anticipates that its ratings on insurers with weaker capitalisation, or those with material exposure to high-risk assets, could come under pressure.

Israeli Insurers

Despite the ongoing conflict and wider political and economic instability, S&P currently does not expect to revise our insurance ratings within Israel. The Israeli government has a scheme that will cover property insurance losses directly related to the war as well as military life insurance claims; insurers themselves will not cover these risks. The most significant effect of a prolonged conflict could be on insurers’ investment portfolios, though these were swift to recover after the initial attack by Hamas on Israel in October 2023.

European Insurers

S&P thinks foreign insurers’ direct exposure to Israel via insurance and reinsurance is relatively immaterial and should not affect the ratings of foreign insurers. Although not its base case, S&P sees a risk that any widening of the conflict could affect capital markets and, consequently, foreign insurers’ investments. For example, European insurers invest in European government bonds, highly rated bank senior bonds, listed and unlisted equities, real estate, and other investments.