Due to the unprecedented rainfall and floods that ravaged the Emirates in April 2024, listed insurance companies in the United Arab Emirates (UAE) are expected to incur losses this quarter.
On April 16th, the heaviest rainfall in 75 years triggered the floods, leading to a drop in stock prices for most insurers, according to Century Financial.
Century reports that insurers with weaker capital positions may experience stress and delays in processing claims. A build-up of claims from the same incident could activate reinsurance plans that limit insurers’ liabilities.
To address the rising frequency and severity of weather events in the region, insurers might increase rates, especially for comprehensive vehicle coverage, in response to these challenges.
Additionally, infrastructure improvements following the floods are anticipated to boost demand for insurance, thereby increasing insurance penetration in the UAE.
Vijay Valecha, chief investment officer of Century, noted significant stock price declines for two of the largest insurance companies: Dubai National Insurance, listed on the Dubai Financial Market (DFM), and Abu Dhabi National Takaful, listed on the Abu Dhabi Securities Exchange (ADX), with drops of 27% and 20%, respectively.
These two companies primarily focus on underwriting or reinsuring against reinsurers.
Conversely, Union Insurance, an Abu Dhabi-listed firm, saw a 32% increase in share price during this period. Century attributes this to the company’s revenue composition: 55% from non-life insurance products and 32% from life insurance.
Valecha stated that the flooding will test reinsurance plans and solvency capital buffers.
Most UAE insurers have strong capital and liquidity reserves; however, about 20% of listed insurers have solvency levels just above or below the legally required minimum.
According to Valecha, this might pressure the capital and liquidity buffers of certain insurers with weak capital positions, potentially delaying claim payments. Insurers with weaker capital positions might consider mergers to enhance their resilience.
Century notes that local insurers primarily handle automotive claims, while commercial risks are usually reinsured globally. Consequently, local insurers’ income is expected to decline this quarter.
Despite the anticipated increase in automotive claims, the insurance market is expected to manage the insured losses. This is because claims are spread across multiple insurers, third-party insurance is common for damaged cars, and reinsurance policies are likely to absorb the accumulated claims, according to Valecha.