Growing Geopolitical Risks Could Put Further Credit Stress on Gulf Insurers

S&P Global Ratings today said that the ratings on insurance companies in the Gulf are not immediately affected by the growing geopolitical tensions in the region following the assassination of Iranian general Qassem Soleimani by the U.S. on Jan. 3 and the ongoing fallout between the two countries.

We maintain our view that any military action by either side will be limited, and will not lead to a fully fledged, direct military confrontation (for more information, see "Rising Sovereign Event Risk In The Gulf Is Testing Our Base Case Of 'No Direct Military Conflict'," published Jan. 6, 2020, on RatingsDirect). Our ratings on Gulf sovereigns already take into account the region's geopolitical volatility. We also do not believe that the current political tensions will have an immediate impact on the business risk and financial risk profiles of insurers in the region.

However, a further escalation of the conflict could undermine confidence and investment in the region and lead to a slowdown in economic growth and more volatility in the region's stock markets, affecting business volumes and putting pressure on both investment returns and capitalization levels.

Reinsurers are also likely to review rates for war coverage, as was the case following the attacks on oil tankers in the Strait of Hormuz in 2019, which led significant increases. We will closely monitor the potential long-term effect of the geopolitical tension in the region and the subsequent impact on the insurers' business risk and financial risk profiles.