Revitalisation of Reinsurance Amid the Turmoil of the Iran vs US-Israel War
The Iran versus United States (US)-Israel conflict is triggering global instability that is shaking the insurance industry, particularly due to supply chain disruptions, a surge in oil prices, and hard-to-predict war risks.
The impact on Indonesia is evident in the weakening rupiah, rising dollar-based reinsurance costs, and increasing imported inflation that pressures insurance companies’ investment portfolios and claims.
Marine cargo and aviation insurance are the most affected, with premiums skyrocketing up to tenfold, while the government strengthens regulations and diversification to maintain national insurance sector stability.
Although war actions are typically excluded from most insurance policies, such conflicts can still have significant indirect impacts on insurance companies and policyholders worldwide. Disruptions to international transportation, trade, and energy supplies can increase risks across various sectors, which in turn affect underwriting decisions, market capacity, and ultimately insurance pricing.
Quoting romeroinsurance.com, Lloyd’s of London, the world’s leading insurance and reinsurance market, insures 40% of global maritime cargo. If a ship sinks, a port is closed, or a canal is blocked, London will pay the claims.
How does the escalation of the Iran versus US-Israel war affect the insurance and reinsurance industries?
First, for the insurance industry, a widening fiscal deficit due to rising oil prices increases sovereign risk, which in turn pressures the country’s credit rating and reduces the value of insurance companies’ investment portfolios.
Second, at the market opening on 9 March, the rupiah weakened to around Rp17,000 per US dollar, the lowest level since the 1998 crisis. The main pressures stem from aggressive US central bank monetary policies, geopolitical uncertainty in the Middle East, and concerns over budget deficits and domestic inflation.
If the conflict continues, analysts believe the rupiah exchange rate could breach Rp22,000. This is a double blow for insurance companies: for reinsurance and retrocession costs paid in US dollars, every rupiah depreciation directly increases expenses. On the other hand, imported inflation raises claim values—vehicle repairs, medical equipment, engine parts, all become more expensive when imported with a weaker rupiah. Bank Indonesia faces an impossible dilemma: raise interest rates to defend the rupiah, or lower them to support an already pressured economy.
To stem the depreciation, Bank Indonesia (BI) and the government are implementing various stabilisation measures, from interventions in the foreign exchange market to optimising export proceeds in foreign currency.
Rupiah depreciation also has the potential to pressure domestic stock market performance. This situation could trigger capital outflows from foreign investors as the value of their assets in dollar terms becomes lower, thereby increasing selling pressure in the market.
Such pressure typically impacts large-cap stocks, particularly the banking sector and issuers with dollar-denominated debt or reliance on imported raw materials. In the short term, the situation could also increase domestic inflation.
For the life insurance industry, stock market volatility is a key factor affecting companies’ investment returns. Large investment portfolios in equity instruments can increase potential returns but also amplify risks when the market is under pressure.
The impact of stock investments on the life insurance industry heavily depends on capital market volatility; positive market conditions significantly boost investment returns, but market weakness triggers insolvency risks and erodes policyholder confidence.
Third, the global reinsurance market is hardening. For risks beyond its capacity, local reinsurers rely on retrocession from global giants such as Lloyd’s, Swiss Re, Munich Re, and others. The global reinsurance market, which had softened by 5%-15% at the start of 2026, has now reversed course. Several major reinsurers have already introduced escalation clauses allowing them to cancel coverage if the conflict worsens.
Fourth, the Financial Services Authority (OJK) is trialling the New RBC for insurance and reinsurance companies with equity above Rp5 trillion. The New RBC is designed to measure capital needs based on a more granular risk profile, including market risk, credit risk, underwriting risk, and operational risk. This trial is important because the insurance industry faces increasingly complex risk changes. These risks include financial market volatility, climate change triggering disaster risks, global geopolitical risks now occurring with the Iran vs US-Israel war, which is said to be able to escalate further impacting trade and logistics businesses, digitalisation increasing operational and cyber risk exposure.
Reinsurance Business
The global reinsurance business is experiencing risk tightening (hardening) due to the Iran-Israel conflict, triggering a surge in war risk tariffs, especially on shipping routes in the Persian Gulf. The US is responding by preparing US$20 billion in reinsurance to maintain trade flows, while global reinsurers are starting to include cancellation clauses if the conflict worsens.
Players in the reinsurance business in Indonesia consist of reinsurance companies (reinsurers), both state-owned enterprises and private ones, as well as reinsurance brokers that bridge risks. They function to spread risks from primary insurance companies to maintain capital stability and protection capacity. Examples include Indonesia Re, Tugu Re, and Nasional Re.
The year 2026 is believed to still offer room for growth in the reinsurance business. However, business risks remain substantial, demanding caution.