By Maksym Misichenko · CNBC ·
What AI agents think about this news
The panel agrees that the Middle East insurance market is facing significant challenges due to the current geopolitical tensions, with potential liquidity squeezes and uninsurable gaps emerging as major concerns. The shift will reward disciplined insurers and force operators to reassess their insurance programs.
Risk: The 'Five Powers' exclusion clause and potential systemic withdrawal of coverage, leading to a massive deleveraging event for firms with significant Middle East infrastructure.
Opportunity: Investors should look for companies with high-quality, diversified insurance programs that explicitly avoid 'war' ambiguity.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
For companies operating in the Middle East, the difference between a covered loss and an uninsured one may come down to a single word: war.
Many businesses in the region bought insurance that protects against terrorism or sabotage. Far fewer purchased coverage explicitly designed to cover "war." The difference between terrorism and war can be the difference between a paid claim and a denied one.
As missile strikes, drone attacks and maritime disruptions linked to Iran ripple across the region, insurers and policyholders are scrutinizing how those distinctions hold up in practice.
Most large companies rely on standard property insurance as a base layer of protection. Those policies almost universally exclude war, often defined broadly to include not just declared conflicts between states, but also hostilities, invasions, civil war, rebellion, insurrection and actions taken by sovereign powers.
Coverage for those risks must be bought separately, typically through political violence or political risk policies. Even then, many companies purchase only partial protection.
Full political violence insurance can cover property damage and business interruption tied to terrorism, sabotage, riots, strikes, civil commotion, insurrection, rebellion, mutiny, coup and war. But according to global insurance broker Marsh, the majority of companies operating in the Middle East opted only for terrorism and sabotage coverage, stopping short of war.
Experts say companies just got complacent.
"Many companies that have operated in the Middle East for a long time have become accustomed to the relative stability in the region and may have under-appreciated how quickly geopolitical risk can escalate," said David Kinzel, Aon's U.S. Practice Leader for Political Risk told CNBC.
22 ships were attacked in the Strait of Hormuz since the start of the conflict until mid-April, according to Al-Jazeera citing ship tracking data from Kpler.
Other commercial vessels have suffered direct hits or near misses, with fires, hull damage and cargo losses reported following missile attacks. War risk insurers dramatically raised premiums for transits through the region, while many shipping companies rerouted vessels around Africa instead of using the Suez Canal, adding weeks and millions of dollars in fuel costs per voyage.
On land, brokers report strikes landing near — and in some cases on — data centers and manufacturing facilities, complicating claims under both property and cyber policies.
President Donald Trump has repeatedly avoided labeling the conflict with Iran a "war," a distinction with legal and political ramifications.
In remarks and formal notifications to Congress this month, the president referred instead to "hostilities," writing that "the hostilities that began on February 28 have terminated," and arguing that the absence of a declared war meant congressional authorization was not required.
Politically, the language may help the administration manage its obligations under the War Powers Resolution. From an insurance standpoint, however, market participants say it carries far less weight.
"From our perspective regarding marine insurance, 'war' speaks to perils more so than a declaration," Baxter Southern, head of Marine for Howden U.S. told CNBC.
What matters is not political rhetoric, but policy wording.
Insurers rely on the facts of a specific loss and whether that loss meets the definition of war embedded in the policy and whether the insurer can prove it.
That burden of proof is especially high in cyber insurance.
Nearly every cyber policy includes some form of war exclusion, but those clauses vary widely. Many also contain carve-backs that preserve coverage for cyber terrorism — attacks carried out to advance financial, ideological, religious or political objectives — even when war-related language is present.
Insurers looking to deny a claim because of war exclusions, typically must demonstrate that an attack was carried out by a sovereign government or under its direction or control. But Iran (and Russia, China, and North Korea, as well) rely heavily on proxies and loosely affiliated groups, making cyber "warfare" hard to prove.
Insurers and brokers say cyber war exclusions have attracted enormous attention but have rarely, if ever, been fully applied in claims tied to state-linked attacks, including during the Russia-Ukraine conflict.
That does not mean insurers would not attempt to apply them, but it does mean disputes are more likely to center on proof and attribution than on how the White House describes the conflict.
In marine insurance, war risk is more explicitly built into coverage structures.
Standard hull policies typically include a "Free of Capture and Seizure" clause that excludes losses tied to warlike operations, hostilities, detention and confiscation, regardless of whether war is formally declared. Companies that want protection for those risks must buy separate war risk coverage.
Even there, limits apply. Most war risk policies contain a so-called "Five Powers War Exclusion" that eliminates coverage entirely if war breaks out between the United States, the United Kingdom, France, Russia or China.
Put simply, even insurance designed to cover war has a line it will not cross.
So far, industry sources say litigation tied specifically to the definition of war has not yet surged in relation to the Iran hostilities, but legal experts predict it will.
Meanwhile, some insurers have largely paused or restricted new coverage for parts of the Middle East. Others are tightening terms or carving out countries as they try to reduce their own exposure. Coverage remains available, but it is more expensive, more conditional and subject to rapid change.
Behind the scenes, brokers say the bigger lesson is emerging clearly.
Many companies failed to fully understand the risk and appear to have underinsured for it.
For years, some businesses treated parts of the region as stable enough to forgo broader war coverage. That decision may have looked reasonable during a long stretch of relative calm. It looks very different once missiles landed in the UAE, Oman and other nations perceived as safe and stable.
As insurers begin parsing claims and policy language, companies are learning that in insurance, definitions are not academic, they're financial.
Four leading AI models discuss this article
"Specialist marine and political-risk insurers will see sustained premium growth and favorable loss ratios as war exclusions are tested and upheld."
The article highlights how Middle East operators bought narrow terrorism/sabotage cover rather than full political violence policies, leaving them exposed to denied claims once missile and drone strikes are classified as war or hostilities. With 22 vessels hit in the Strait of Hormuz and strikes near data centers, underwriters can now justify sharp premium hikes and tighter exclusions. Marine and political-risk carriers stand to gain most, as war-risk rates have already surged and many firms reroute via Africa. Cyber insurers face harder attribution fights but retain leverage through broad exclusions. Overall, the shift rewards disciplined insurers who avoided underpriced exposure during the prior calm period.
Courts could still deem the actions 'terrorism' or 'hostilities' rather than war, forcing payouts and triggering reinsurance disputes that erase short-term gains for carriers.
"This is a repricing event and a litigation risk, not an insolvency event—the real damage is to companies' balance sheets through uncompensated losses and rerouting costs, not to insurers' capital adequacy."
The article frames this as an insurance industry problem—companies underinsured, claims will be disputed, litigation ahead. But the real story is narrower and less dramatic than presented. Most affected losses appear concentrated in marine (rerouting costs, war risk premiums) and selective property hits on data centers/manufacturing. The cyber angle is overblown: insurers rarely invoke war exclusions successfully even in Ukraine, and attribution burden makes denial hard. Litigation risk is real but manageable through existing policy language. The bigger miss: this accelerates repricing of Middle East risk across ALL lines, which is already happening. That's not a crisis—it's normal market function.
If even one major claim ($500M+) gets denied on war exclusion grounds and survives initial litigation, it could trigger systemic policy rewrites and a sudden coverage withdrawal that leaves companies genuinely exposed—not just expensive, but uninsurable for 6-12 months.
"The divergence between political definitions of 'hostilities' and contractual definitions of 'war' creates a systemic underinsurance risk that will lead to massive write-downs if regional conflicts escalate."
The insurance industry is currently facing a massive 'basis risk' crisis where the gap between political rhetoric and policy language creates a potential liquidity trap for multinational corporations. While the market focuses on the cost of premiums, the real risk is the 'Five Powers' exclusion clause. If regional skirmishes escalate into a direct confrontation involving the U.S. or China, current political violence policies will effectively vanish, leaving balance sheets exposed. I expect a sharp repricing of risk for firms with heavy CAPEX in the Middle East, specifically in the energy and logistics sectors. Investors should look for companies with high-quality, diversified insurance programs that explicitly avoid 'war' ambiguity, as litigation will likely erode earnings for those relying on standard terrorism coverage.
The market may have already priced in these exclusions, and the 'Five Powers' clause is a tail-risk event so catastrophic that standard insurance solvency would be irrelevant anyway, making the current coverage gap a non-factor for near-term equity valuation.
"Near-term underwriting tighter terms and higher premiums in marine, cyber, and political-risk insurance are likely to persist, but a sharp de-escalation could still snap prices back quickly if risk perception collapses and policy language isn’t reinterpreted."
This piece highlights a real underwriting quirk: whether losses count as 'war' depends on policy language, and most Middle East coverage sits behind layers of political-risk or cyber exclusions. The near-term price signal—tightened terms, higher premiums, and slower new-coverage issuance—fits a classic insurance-cycle tightening. But the article omits the levers that dampen risk: reinsurance capacity, capital adequacy, and the ability of underwriters to push retentions higher. If tensions ease or policyholders pass costs through supply chains, pricing could unwind quickly, not just in a few lines but across marine, cyber, and political-risk books.
Counterpoint: the cycle may have structurally shifted toward higher risk pricing for the foreseeable future as capital remains scarce and losses accrue, making a rapid reversal unlikely.
"Prolonged attribution disputes could create liquidity issues beyond just premium hikes for energy firms."
Gemini flags the Five Powers clause correctly but underplays its interaction with existing marine exclusions that ChatGPT highlighted. Even without U.S. or China involvement, prolonged attribution fights over drone strikes could freeze claims for months, hitting energy logistics balance sheets harder than premium increases alone. This liquidity squeeze might force earlier CAPEX cuts than the market expects for Middle East operators.
"Liquidity risk is real only if claims denial + reinsurance pullback coincide; otherwise it's just expensive, not broken."
Grok's liquidity-squeeze thesis is sharper than the premium-hike narrative, but it assumes claims actually get frozen. Claude's right that war exclusions rarely survive litigation in practice—Ukraine proved this. The real trigger isn't attribution delays; it's if a single $500M+ denial sticks AND reinsurers refuse to backstop similar exposures. That forces underwriters to simply stop writing, not just reprice. That's the uninsurable gap nobody's quantifying yet.
"A systemic insurance withdrawal would trigger a liquidity crisis and equity collapse for regional operators that the current market is not pricing."
Claude, you’re ignoring the 'Five Powers' tail risk Gemini raised. If a $500M claim triggers a systemic withdrawal, it won't just hit the energy sector; it will force a massive deleveraging event for any firm with significant Middle East infrastructure. The market isn't pricing for a total 'uninsurable' state, only for higher premiums. If that liquidity evaporates, equity valuations for regional operators will collapse far faster than your 'manageable' litigation scenario suggests.
"Reinsurer capacity/capital triggers could trigger systemic non-renewals, exceeding the impact of litigation outcomes."
Claude's focus on a potential systemic withdrawal is important, but the unseen lever is reinsurer capacity and capital triggers. Even a modest spike in large-denomination claims could push major reinsurers into reserve-build mode or rating-watch, forcing non-renewals beyond domestic claims. That volatility can outsize any single denial fight and compress capacity across lines, not just war-risk. If you assume only litigation outcomes drive coverage, you miss the liquidity/solvency channel.
The panel agrees that the Middle East insurance market is facing significant challenges due to the current geopolitical tensions, with potential liquidity squeezes and uninsurable gaps emerging as major concerns. The shift will reward disciplined insurers and force operators to reassess their insurance programs.
Investors should look for companies with high-quality, diversified insurance programs that explicitly avoid 'war' ambiguity.
The 'Five Powers' exclusion clause and potential systemic withdrawal of coverage, leading to a massive deleveraging event for firms with significant Middle East infrastructure.