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UAE: Insurers lost up to Dh9 billion in heavy April rains this year

Many companies raised auto and property premiums in the wake of the unprecedented rainfall

Insurers in the UAE lost up to $2.5 billion (Dh9.175 billion) during rains witnessed earlier this year, including the unprecedented rainfall in April. The record rains caused massive losses to properties and vehicles in Dubai, Sharjah and other northern emirates, according to global ratings agency S&P.

“The UAE experienced a number of storms in early 2024, with the one on April 16 producing the most substantial rainfall since climate data recording began in 1949. Based on current estimates by industry participants, insured losses from the rainstorms could range from $1.5 billion to $2.5 billion (Dh5.5 billion to Dh9.175 billion), largely relating to property claims in Dubai,” said S&P analysts in the latest note about Dubai released on Wednesday.

“Local insurers typically cede large, high-value property and infrastructure-related risks to international reinsurers. In addition, most local insurers obtain excess of loss coverage for their motor insurance portfolios. This should significantly limit the net impact on local insurers,” said the global ratings agency.

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The UAE recorded the heaviest rains on April 16, causing damages to residential and commercial properties and automobiles, causing a big loss to insurance firms. As a result, many companies raised auto and property premiums in the wake of the unprecedented rains.

According to a quarterly report released by Insurance Monitor, the before-tax profit in the UAE is reported at an unexpected 7.1 per cent with a nominal increase in Net Combined Ratio (NCR), which is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations. The UAE insurers’ profit before tax increased from Dh975 million to Dh1.044 billion year-on-year.

Reinsurance premiums rising

On the reinsurance side, S&P noted that rates have increased in recent years – particularly for non-proportional covers for energy, property, and liability risks.

“These increases are in line with global trends, given a reduction in capacity and some material reinsurance losses from global events in recent years. We think the available reinsurance capacity in the UAE remains adequate for all major risks, but that rates related to natural catastrophes will increase materially this year,” he added.

Ongoing premium growth, high competition leading to weaker profitability, and an increase in claims activity have strained the capital buffers of some smaller and midsize insurers in the UAE in recent years.

“Although most insurers we rate in the UAE have robust capital and liquidity buffers, almost a quarter of the 26 listed insurers did not meet the required regulatory solvency capital requirements as of midyear 2024. This will likely accelerate capital raising and M&A (merger and acquisition) in the sector,” said S&P analysts.

Dh50 billion GWP

S&P noted that favourable economic conditions, relatively high oil prices, long-term investor visas, and other positive structural changes have spurred growth in the insurance sector in Dubai and the UAE in recent years.

“Ongoing economic growth in the UAE's oil and non-oil sectors will support premium growth and we expect that the repricing of motor and property policies, after the rainstorms in early 2024, will also propel top-line growth by 10-15 per cent in 2024. As a result, we expect gross written premiums (GWP) for the UAE to exceed Dh50 billion, of which about two-thirds are generated in Dubai, for the first time in 2024,” said ratings agency.

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