While the conflict following U.S. and Israeli military actions against Iran since late February won’t shut down Canada’s economy, risks are rising for certain business sectors.
“Certain activities [can] become un-economic or temporarily unfinanceable,” says Marcos Alvarez, managing director, global financial institution ratings at Morningstar DBRS.
He notes there are immediate risks for Canadian commercial clients with people, assets, contracts, cargo, or counterparties in or near the Middle East. Both political violence and all-out war in the region can mean customers aren’t able to take delivery of goods or make payments, and that exporters may suffer losses of inventory or equipment.
Alvarez adds Canada’s government is “facilitating departures from the region, underscoring the practical risk around staff mobility, evacuation, and business continuity.”
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Sectors at risk are mainly tied to shipping in the Persian Gulf or Red Sea, airlines and companies that lease to them, airports, firms financing projects in the region, contractors working in infrastructure, and commodity traders.
There are also risks for exporters that rely on coverages for cargo, credit, or political risk related to instances where they’d need to satisfy their counterparties or lenders.
“In Canada itself, if capacity tightened sharply, the pinch would likely be felt by landmark commercial real estate, major event venues, ports [and] terminals, and community institutions that need specialty terrorism or political violence protection, but that is still a narrower problem rather than a general market shutdown,” Alvarez tells CU.
Domestic concerns
He adds exposures most relevant to Canada’s homefront include hotels, malls, sites linked to diplomatic activities, religious organizations, community centres and transit nodes.
“Canada has also seen rising antisemitism and hate incidents linked to the Middle East events, which increases concerns around smaller, high-visibility losses even if catastrophic attacks remain unlikely,” he says.
“The most likely spillovers are not blockbuster losses but smaller, harder-to-model events [like] cyber disruption, threats to symbolic or community targets, and supply-chain interruptions that hit several insurance lines at once.”
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In terms of which insurance covers Canadian commercial clients should be considering, Alvarez says from his perspective at a credit rating agency, there is a shift away from narrow terrorism policy wordings toward broader coverages for war, terrorism and political violence.
“For transport-linked clients, it is usually separate marine cargo war and strikes cover, voyage-specific war-risk cover, aviation war and allied perils…crisis-management products such as [kidnap and ransom], evacuation response, and active assailant [are] the most sought after covers in times of conflict,” Alvarez says.