Profits at UAE insurance companies' profits could plunge by up to one-fourth in the second quarter due to unprecedented rains in April, which caused severe property and vehicle damages.
Following the highest rainfall in the UAE in 75 years and severe floods in April, insurers witnessed a massive increase in claims related to automobiles, villas, and commercial properties. Some industry insiders suggest up to 100,000 vehicles were damaged during the rains, according to a Khaleej Times report.
“The combined effect of increased claims and higher reinsurance costs is projected to reduce profits significantly. Estimates suggest that profits could drop by as much as 15-25% compared to the previous quarter, depending on the insurer's exposure and reinsurance arrangements,” said Mr Salman Shah, senior consulting actuary at Lux Actuaries and Consultants.
He also said, “This situation has strained the financial resources of many insurance companies, especially those with minimal reinsurance coverage or lower capital buffers. Guy Carpenter's updated estimate of insured losses amounts to $2.4bn, with motors' share at $250m."
He added that most insurers are expected to see a drop in profits rather than slipping into outright losses.
Smaller insurers
“The strong reinsurance coverage for major claims helps in mitigating the financial impact. However, some smaller and less capitalised insurers might face liquidity and solvency issues. Larger insurers with diverse portfolios and substantial capital reserves are better positioned to absorb the shock without falling into the red,” said Mr Shah.
Investment income to offset impact
Ms Jessica Botelho-Young, associate director at AM Best, said the UAE floods will impact insurers' profitability for 2024, particularly those with greater exposure to motor comprehensive risks in Dubai.
“This will include local insurers and those that have subsidiary or branch operations in the market. Property and engineering claims will be largely ceded to the international market. There may be some accumulation of net loss exposures, utilisation of reinsurance capacity and ability to restate reinsurance cover if exhausted, potential changes to T&C, including price and commission rates at renewal – this could depress future profitability,” said Ms Botelho-Young.
She added that many insurers’ losses for the quarter could partly be mitigated by investment income.
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