The operating performance of United Arab Emirates (UAE) insurers remains resilient despite the impact of severe rains early last year on full-year earnings, events that have also highlighted the region’s natural catastrophe exposures, according to a recent report by AM Best.
While the market traditionally considers earthquakes as the most significant and probable natural disaster, with companies using probable maximum loss (PML) estimates to guide reinsurance purchases and define risk appetite, AM Best anticipates a shift in focus.
Given the increasing frequency and changing nature of weather-related events in the region, the rating agency expects insurers will need to develop expertise in modelling other potential loss exposures.
According to the report, international reinsurers have carried most of the burden of the larger UAE pluvial flood event in 75 years, which has a total estimated insured loss in the range of $2.9 billion to $3.4 billion.
AM Best noted that existing reinsurance programs were appropriately structured to absorb these substantial losses, leading to relatively modest net retained losses for UAE insurers.
As a result, reinsurance renewal costs for UAE insurers have increased through higher reinsurance premium rates and/or reduced profit commissions, prompting primary carriers in the country to impose premium rate increases on direct business.
And, although net losses remained manageable, AM Best observed that gross reported losses sometimes exceeded the PML estimates provided by AM Best-rated companies during its interactive rating process.
Despite the insured rain losses, the report points to early evidence, based on year-end 2024 results, suggesting that there has been a positive reversal in the underwriting performance of listed insurers, with insurance service results having shown considerable improvement.
Overall, insurance service results in 2024 showed a 14% increase compared with the previous year, aligning with AM Best’s general expectations following the industry’s corrective actions in risk management and technical pricing improvements.
The report also reveals that listed insurers in the UAE reported a 12% growth in insurance revenue, driven by significant improvements in premium rates (particularly for motor and property business) and mergers and acquisitions (M&A) activity.
Notably, the performance of the top five insurers accounts for over 85% of the market’s total earnings, further widening the gap between the largest and smallest players in the UAE insurance sector.
