Escalating hostilities between the US, Israel and Iran have turned into a major stress test for global insurers, with direct implications for marine, aviation, property, travel and trade-related covers, according to a report from Morningstar DBRS.

Following US-Israeli strikes on Iranian military targets on Feb. 28 and Iran's subsequent missile and drone response, airspace over Iran, Iraq, Kuwait, Israel, Bahrain, the UAE and Qatar has been temporarily closed, shutting key hubs including Dubai, Abu Dhabi and Doha. Shipping through the Strait of Hormuz – a chokepoint for around one-fifth of global crude and seaborne gas – has largely been halted, and three commercial vessels near the strait were reported attacked on March 1.

War-risk underwriters have issued seven-day cancellation notices for ships transiting the Gulf and are preparing sharp premium increases. The combination of cancellation rights, rapid repricing and concentrated exposure is driving a spike in underwriting volatility and credit risk.

Marine war risk: cancellation, repricing and accumulation

Standard marine hull policies exclude war, piracy, terrorism and seizure, so shipowners typically buy separate war-risk cover, often on a voyage basis, with seven-day cancellation provisions. The Nordic Marine Insurance Plan follows the same approach, allowing either party to cancel with seven days’ notice when circumstances change, with new terms expected to follow.

Brokers reported that, as the latest strikes unfolded, war-risk underwriters moved quickly to serve cancellation notices before markets reopened, using the contractual window to reprice and tighten wordings. Cover is not automatically withdrawn; it is usually reinstated at higher rates and, where necessary, on more restrictive terms. Cargo war-risk policies are being treated in a similar manner, according to the report.

During the recent Red Sea crisis, war premiums reportedly rose from about 0.05% of vessel value to around 0.7% at the peak. Market estimates now suggest premiums for Hormuz transits, previously roughly 0.25%, could climb beyond 0.5% if hostilities persist, approaching levels seen in earlier geopolitical flashpoints. If underwriters judge the risk effectively unquantifiable, some may simply refuse to quote.

Specialist war-risk markets may benefit from higher pricing in the short term, but increased accumulation in a narrow corridor is raising the downside. Around 1.4% of the global container fleet is currently stranded in or around the Strait of Hormuz, and tanker sailings have been suspended. A total loss of a large vessel could easily generate insured losses of US$200 million to US$300 million once hull, cargo and liability claims are combined.

Reinsurers are likely to respond by lifting attachment points, tightening event definitions and cutting capacity, leaving primary carriers with higher net retentions. The impact will be most acute for insurers with concentrated marine and energy books or limited diversification elsewhere.

Aviation and travel: exclusions versus escalation risk

Aviation insurers are also exposed, both directly and indirectly. More than 20 airlines have suspended services to major Middle Eastern hubs, while long-haul flights are being rerouted around closed flight information regions, increasing fuel costs and operational complexity.

Stranded passengers are likely to test the scope of travel cover. Many policies exclude acts of war, but some offer broader cancellation or trip disruption benefits; outcomes will depend heavily on wording. Insurers can expect a spike in notifications and potential disputes over exclusions.

For aviation hull and liability underwriters, the greater concern is low-frequency, high-severity loss. Modern missiles and drones are capable of striking outside formally defined conflict zones, raising the risk of a stray or misdirected missile hitting a commercial aircraft or major airport. Standard policies typically exclude war and allied perils, but many airlines buy dedicated war covers that could be triggered by such scenarios. Those covers were already repricing after earlier Iran–Israel tensions and are set for further hardening.

Property, political violence and supply chains

Missile and interceptor activity over Gulf cities has pushed political violence and terrorism exposures into sharper focus. Incidents affecting areas such as Dubai’s Palm Jumeirah and Jebel Ali port, and explosions over Abu Dhabi neighbourhoods, highlight the potential for losses to dense urban and commercial zones.

Landmark assets and major hotels in the region are generally insured through specialist political violence and terrorism programmes, often with layered structures and reinsurance support. Business interruption could arise not only from physical damage but also from evacuations, forced closures and damaged infrastructure. Any sizeable loss on an iconic property is likely to feed through to higher pricing and tighter capacity in terrorism and political violence markets.

The closure of Hormuz and regional ports is also straining global supply chains. Container carriers have suspended transits and diverted vessels, leading to longer routes, higher costs and rising working-capital needs. Marine cargo, supply-chain and trade credit insurers will be watching for delayed or missed payments in trade flows dependent on Gulf routes, particularly where war and political risk exclusions limit the scope of traditional covers.

Across all affected classes, the key issues for insurers are aggregation and duration. A prolonged disruption without a major insured loss may translate into elevated earnings volatility and higher war-risk pricing. A single large, multi-line loss event would bring capital, reinsurance structures and ratings under much closer scrutiny, especially for carriers with concentrated Gulf or specialty portfolios.