This report does not constitute a rating action.
Insurers and banks are bracing themselves for further conflict as Israel extends its military operations in the region. An Israeli government scheme program is in place that will cover the majority of insurance losses related to the conflicts, while Gulf Cooperation Council (GCC) insurers are reliant on their robust capital buffers. Israeli banks benefit from government support provided to the economy that reduce the negative spillover effect on the banking system. S&P Global Ratings will monitor the changing risks to insurers and banks, but ratings are not yet affected.
What's Happening
Over the past few days, the Israel-Iran conflict has intensified, sparking global concerns. Missile strikes and military attacks have caused property damage and casualties in Israel, where the past 18 months have been marked by the ongoing operation in Gaza, actions in Lebanon, and general economic uncertainties over the past 18 months.
Why It Matters
Insurance and banking markets will have to adjust to the renewed conflict, and to greater political and economic instability. Nevertheless, we do not currently anticipate taking negative actions on either our insurance or our banking ratings within Israel.
Although gross premium growth in the Israeli insurance market was fairly flat in 2024, net results were robust across the board. Improvements in technical profitability and healthy investment income from supportive financial markets reinforced the results. Over the past year, Israel's economy has proven its strength and resilience. Key macroeconomic indicators and private consumption have been relatively stable, and growth in the capital market outpaced major global indices.
The Israeli insurance market performed well in 2024; return on equity (ROE) rose to about 15%, from about 8% in 2023. Consequently, the average solvency ratio remained at about 160%. Insurers sustained this positive momentum throughout the first quarter of 2025.
We attribute some of this resilience to the support of an Israeli government scheme that covers property insurance losses directly related to the war, as well as military life insurance claims. As a result, domestic insurers do not have to cover these risks. Although we consider Israeli insurers' significant catastrophe reinsurance programs to be positive, we do not expect losses to reach such levels. Over the past few days, as the Israel-Iran conflict has intensified, Israeli civilian casualties have increased.
Israeli banks also benefited from government support and reported resilient performance in 2024 and first-quarter 2025. The systemwide ROE stood at about 15%, close to the historical high, and quality deterioration has been contained, with nonperforming loans at a low 1% as of March 2025 and cost of risk at a low 15 basis points in 2024. Over this period, Israeli banks' efficiency ratios have compared favorably with those of European peers, a remarkable turnaround from a few years ago.
In the countries of the Gulf Cooperation Council (GCC), we expect credit conditions for rated insurers to remain broadly stable in 2025, supported by robust capital buffers and adequate growth and earnings prospects. A further escalation, including a full-scale conflict between states in the Middle East, would be economically, socially, and politically destabilizing for the entire region, including insurance markets. The impact of such a scenario on trade, financial flows, and tourism would depress growth prospects and earnings for all the insurers in the region. If a wider or prolonged conflict were to develop, leading to significant fluctuations in asset prices, we anticipate that our ratings on GCC-based insurers that have weaker capitalization or material exposure to high-risk assets could come under pressure.
What Comes Next
We are closely monitoring how the conflict is evolving, and the potential impact of any changes on insurance and bank ratings in the region. Although we do not currently expect a prolonged or widespread conflict, we do not rule out the possibility and would reconsider our base case in such a scenario.
In particular, should insurers and banks face a prolonged or widespread conflict, it could have secondary effects. In our view, the most immediate impact for insurers would be on their investment portfolios. Looking at banks, we believe they could face a decline in revenue, substantial increase in credit losses, and would have to test the behavior of resident depositors. Furthermore, if we were to lower the sovereign credit rating on Israel from the current 'A/A-1', we would also act on certain insurance and bank ratings in Israel. The outlook on our sovereign rating on Israel is negative.
Related Research
- Outlooks On Three Israeli Banks Revised To Stable From Negative On Financial Resilience, May 29, 2025
- Tariffs Put European Re/Insurance Ratings To The Test, April 9, 2025
- Various Rating Actions Taken On Israeli Banks On Sovereign Downgrade; All Outlooks Negative, Oct. 9, 2024
- A Prolonged Financial Market Downturn Would Erode Insurers' Surplus Capital Across EMEA, Nov. 25, 2024
- European Insurance Outlook 2025: Holding Up Well, Nov. 21, 2024
- Various Rating Actions On Israeli Banks On Increased Geopolitical Risks; All Outlooks Negative, May 2, 2024
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