Record Rainfall Triggers Surge in Auto and Property Premiums, Reshaping Insurance Market
The insurance industry in the UAE has been hit with substantial losses following the unprecedented rainfall witnessed earlier this year, with insurers incurring losses of up to Dh9 billion ($2.5 billion). According to a report from global ratings agency S&P, the rains, including those on April 16, brought the most significant deluge the UAE has experienced since weather records began in 1949, causing widespread damage to properties and vehicles across Dubai, Sharjah, and other northern emirates.
The April 16 storm, marked by record-breaking rainfall, led to a surge in insurance claims, predominantly related to property damages. Analysts at S&P estimate that insured losses from the storms range between $1.5 billion and $2.5 billion, with Dubai bearing the brunt of the claims.
Impact on Local Insurers and Premiums
While local insurers typically cede substantial, high-value property and infrastructure risks to international reinsurers, they also rely on excess loss coverage for motor insurance. This, according to S&P, has mitigated the overall financial burden on UAE-based insurers. However, despite the cushioning effect of reinsurance, many local insurers have raised auto and property premiums to absorb the financial shock of the rains.
The surge in premiums comes at a time when the UAE’s insurance market has already been grappling with rising reinsurance costs, particularly for non-proportional coverage related to energy, property, and liability risks. In recent years, global trends have driven up reinsurance rates, exacerbated by reductions in capacity and significant losses from global events.
Sector Profitability and Growth
Despite the April rainfall losses, the UAE insurance sector has demonstrated resilience, with the Insurance Monitor reporting a 7.1% increase in pre-tax profit. The sector’s profit before tax rose from Dh975 million to Dh1.044 billion year-on-year, even as the Net Combined Ratio (NCR), a key measure of operational profitability, showed a nominal increase.
However, the heavy competition in the market and ongoing premium growth have strained capital buffers for some smaller and mid-sized insurers. According to S&P, nearly a quarter of the 26 listed insurers in the UAE failed to meet regulatory solvency capital requirements as of mid-2024, which may prompt a wave of capital raising and mergers and acquisitions (M&A) within the sector.
Reinsurance and Future Market Outlook
S&P’s report highlights that reinsurance premiums in the UAE have been steadily rising, particularly in response to global natural catastrophes and capacity constraints. Rates linked to natural disasters are expected to increase significantly in 2024 due to the heavy losses incurred earlier in the year.
Despite the challenges, the UAE insurance market is projected to continue its robust growth, supported by favourable economic conditions, relatively high oil prices, and structural reforms such as long-term investor visas. S&P forecasts that the repricing of motor and property policies following the early 2024 rainstorms will propel premium growth by 10-15%, pushing the UAE’s gross written premiums (GWP) past Dh50 billion for the first time.
Dubai alone is expected to generate about two-thirds of this premium volume, underscoring the emirate’s dominance in the national insurance landscape.
A Changing Insurance Landscape
The record rainfall and subsequent financial fallout have reshaped the UAE’s insurance market, prompting companies to adjust their premiums and capital strategies. While international reinsurers have provided a safety net, local insurers are navigating increased competition, regulatory pressures, and the need for sustainable growth amid a shifting risk environment. As the sector evolves, both insurers and reinsurers will need to adapt to rising climate-related risks and market dynamics, while capitalizing on opportunities for long-term growth and resilience.
