Is War Risk Really Uncorrelated? Diversification Claims in Marine and Climate ILS

The standard case for insurance-linked securities is that a hurricane does not care what equity markets are doing. For natural catastrophe that argument largely holds. For war and geopolitical risk it needs qualification, because the same events that damage ships also move energy prices, freight rates, inflation expectations and risk assets.

Localised marine perils — a single port accumulation, a regional flood, a named-storm loss to fixed marine assets — remain largely idiosyncratic from a capital-markets perspective. So do many attritional specialty exposures. Adding them to a nat-cat-dominated ILS book can improve peril and geographic diversification within the insurance risk sleeve itself, which is often the more valuable effect.

A chokepoint closure is a macro event. It raises freight and energy costs, disrupts supply chains and can coincide with broader market stress, meaning a war-risk position may pay out precisely when the investor's other assets are under pressure. The diversification benefit is therefore weaker exactly in the scenarios where it is most wanted.

Climate perils have their own linkage channel through physical damage to economically critical infrastructure and through transition-policy shocks that reprice whole sectors.

Rather than asserting low correlation, allocators should run joint scenarios: a Hormuz or Bab el-Mandeb disruption alongside an energy price spike and a risk-asset drawdown; a major coastal flood alongside a regional economic shock. The relevant measure is the portfolio's behaviour in those joint states, not an unconditional historical correlation over a period containing no such event.

Quantica Marine Insurance AB provides independent risk analysis, actuarial modelling and structuring support for portfolio-level scenario analysis, concentration reporting and correlation testing for ILS allocators taking marine, war and climate risk. Founder and Chief Executive Officer Jonas Mohamed Osman Abdelghafour — known professionally as Yonas Osman — is an actuary and Financial Risk Manager (GARP) with more than twenty years across insurance, banking, actuarial modelling and model validation. Request a demonstration or an independent review.

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