Financial market turmoil poses the largest risk to Australian and other Asia-Pacific insurers stemming from the Iran war, according to an S&P Global Ratings report on the conflict’s impacts.

“Asia-Pacific insurers have limited direct exposure … they are feeling indirect pain, however, mostly through financial market volatility,” the ratings agency said today.

“Investment market volatility represents the most profound indirect risk to Asia-Pacific insurers from the ongoing conflicts.

“If geopolitical tensions escalate, it could heighten capital market and foreign exchange volatility, leading to capital and earnings volatility.”

The ratings agency says insurers have sufficient capital buffers to weather market uncertainty.

It notes most Asia-Pacific insurance markets have limited shipping exposures. In Australia, aviation, hull and cargo account for less than 2% of industry premium.

In an assessment last month, S&P Global Ratings warned of pressure on underwriting margins from rising energy costs, and the ratings agency again flags it as a threat.

“A prolonged conflict would lead to higher input costs, weaker macroeconomic conditions and higher living costs.

“For non-life insurers, we would expect compounding claims expenses in motor, property and commercial lines to prompt hikes in premiums.”

Higher energy costs could also indirectly affect insurers.

“Asia-Pacific’s net energy importing status leaves it vulnerable to prolonged disruptions to energy supply. While many economies maintain strategic crude oil stockpiles to manage short-term disruption, a prolonged conflict would ultimately disrupt economic activity and household income, and exert pressure on credit profiles of insurers.”