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Emirates floods to impact insurance companies in UAE

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Post-flood infrastructure improvements will stimulate demand for insurance, hence promoting higher insurance penetration in the UAE

Due to the extraordinary rainfall and floods that wreaked havoc in the Emirates in April 2024, listed insurance companies in the United Arab Emirates (UAE) are predicted to suffer losses this quarter.

The strongest rainfall in 75 years on April 16th created the floods, which have resulted in a decline in the stock prices of most insurers, according to Century Financial.

According to Century, while insurers with weaker capital positions can experience stress and endure delays in processing claims, a build-up of claims from the same incident might result in reinsurance plans that limit insurers’ liability.

To address the increased frequency and severity of weather occurrences in the area, insurers may raise rates in reaction to these issues, especially for comprehensive vehicle coverage.

In addition, it is projected that post-flood infrastructure improvements will stimulate demand for insurance, hence promoting higher insurance penetration in the United Arab Emirates.

According to Vijay Valecha, chief investment officer of Century, two of the biggest insurance companies have experienced notable stock price declines: Dubai National Insurance, listed on the Dubai Financial Market (DFM), and Abu Dhabi National Takaful, listed on the Abu Dhabi Securities Exchange (ADX), with declines of 27% and 20%, respectively.

The two businesses primarily deal in underwriting, or reinsuring, against reinsurers.

Nevertheless, Union Insurance, an Abu Dhabi-listed firm, saw a 32% increase in share price during that time. Century attributed this to the fact that the company makes 55% of its revenue from non-life insurance products and the remaining 32% from life insurance.

According to Valecha, the flooding will put reinsurance plans and solvency capital buffers to the test.

The majority of insurers in the United Arab Emirates possess strong capital and liquidity reserves; nevertheless, approximately 20% of listed insurers have solvency levels that are either marginally over or below the legally mandated minimum.

According to Valecha, this might put pressure on the capital and liquidity buffers of certain insurers with weak capital positions, which could postpone the payment of claims. To strengthen their resilience, insurers with weaker capital positions might look to merge.

According to Century, local insurers handle the majority of automotive claims, while commercial risks are usually reinsured globally. As a result, local insurers’ income is expected to suffer this quarter.

The insurance market can manage the insured losses even with the expected increase in automotive claims since they are spread across multiple insurers, third-party insurance is common for damaged cars, and reinsurance policies are likely to absorb accumulated claims, according to Valecha.

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