Insurers in Gulf Cooperation Council (GCC) markets are coming under
pressure to increase retention levels for high-rise buildings to
demonstrate their alignment of interests with those of reinsurers,
according to new research by A.M. Best.
In a new Best’s Briefing, titled “GCC Insurers Must Monitor
Impact of Changing Terms for High-Rise Property Insurance,” A.M. Best
discusses how property insurance has been a major issue given the
frequency of losses experienced over the past decade. For many insurers
and reinsurers, it is an underperforming business segment, and in many
Global reinsurers have introduced stricter terms and conditions over the
past five years, including event limits and tighter policy wordings
following regional instability. According to the briefing, during the
recent renewal period, some of the major reinsurers stipulated local
insurers must retain a minimum of 30% of risks following a large number
of fires in high-rise, skyscraper buildings in the Middle East. A.M.
Best considers this to be a significant development for the market if
implemented, given that commonly net retention levels were at 5% or
lower on high-value risks.
Mahesh Mistry, senior director of analytics at A.M. Best, said: “During
the renewal period leading up to 1 January 2017, reinsurance companies
have responded to the recent fire losses by further tightening terms and
conditions, and adjusting commission rates for residential and
commercial property risks. Most insurers have been under pressure to
accept quota share treaties with higher retention mainly as a result of
weak performance stemming from poor risk selection.
“While insurers are moving toward higher retention levels, in part to
ensure a greater alignment of interests, A.M. Best believes that they
will need to monitor whether this increased exposure will impact their
balance sheets in the event of a major loss. A significant rise in
retention levels could require greater levels of capital and will
increase volatility within underwriting performance, although GCC
companies rated by A.M. Best tend to be well-capitalised.”
In the past three years, significant claims for property insurance
covering high-rise and high-value buildings have included fires in Dubai
in 2015 at the Address Hotel on New Year’s Eve, and earlier that year at
the Torch residential skyscraper. The loss estimate for the Address
Hotel claim is estimated between USD 200 million to USD 300 million,
which, if taken together with the ACWA Power fire in Saudi Arabia, could
have been sufficient to result in a negative return for most
international reinsurers’ Middle East property portfolios.
Yvette Essen, director, research & communications – EMEA, said: “In
2016, there was further pressure on reinsurers’ technical performance
for their GCC portfolios, as although fatalities have been few,
subsequent fires have resulted in material property and business
To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=257702.
A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.
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