The heavy downpour on April 15-16th, the most intense since records began in 1949, caused widespread flooding that significantly disrupted travel and damaged property, particularly in Dubai.
S&P Global Ratings predicts that motor and property damage claims will account for the majority of losses for local insurers. While substantial motor claims are anticipated, the insurance industry is expected to handle the insured losses due to their distribution across many insurers, the prevalence of third-party insurance for damaged cars, and reinsurance policies that could absorb accumulated claims.
Though there has been significant damage to commercial and residential properties, S&P highlights that high-value commercial risks are typically covered by international reinsurers, thereby reducing the risk for local insurers. Additionally, some property developers in Dubai have pledged to cover repair costs for residential buildings, further minimizing local insurers’ exposure.
Despite the damage to Dubai’s infrastructure, including the airport, public rail network, and large shopping malls, S&P expects minimal impact on local insurers as such risks are typically ceded to reinsurers. Nevertheless, the event will put solvency capital buffers and reinsurance programs to the test.
S&P highlights, “Although most insurers we rate in the UAE have robust capital and liquidity buffers, the solvency of about 20% of the listed insurers is only slightly higher, or even lower, than the required regulatory minimum.”
“As a result, we anticipate that the capital and liquidity buffers of some insurers with weak capital positions could become strained, potentially leading to some delays in claim payments. In our view, this could be the case in particular for thinly capitalised insurers that retain a large portion of motor and other risks and those that do not have adequate reinsurance cover in place,” analysts conclude.
