Gulf Cooperation Council (GCC) insurers will need to re-examine their risk appetite and strengthen their ERM practices to ensure man-made risks are appropriately managed, even if they have lower risk of Nat CATs, according to a new report from A.M. Best.
The GCC countries have traditionally had lower exposure to Nat CATs, according to the Best’s Market Segment Report, titled, “GCC Natural Catastrophe and Man-Made Losses Highlight Importance of Enterprise Risk Management. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE have experienced lower activity for earthquakes, storms and flooding in comparison with other countries.
However, some weather-related disasters like Cyclone Mekunu, which struck Oman in May 2018, Super Cyclone Gonu in 2007 and flooding in the United Arab Emirates (UAE) and Saudi Arabia serve as reminders that the region is not entirely free of Nat CAT risks.
A.M. Best general manager of market development Vasilis Katsipis said, “In A.M. Best’s opinion, a single large catastrophe event could have a severe impact on the region’s (re)insurance industry. Had Gonu’s reach been wider or focused on an area with higher insured values, such a weather system or other catastrophic event would have had profound implications.”
Based on A.M. Best’s data captured on 164 companies, a single event with the same severity as Gonu across the GCC would have resulted in an estimated third of all companies requiring recapitalisation, with total capital injection that could potentially amount to $1.38bn.
The report states that although historically traditional losses caused by nature are less of a feature of the GCC markets, man-made risks such as outstanding balances can be regarded as hidden sources of peril.
Consequently, A.M. Best believes that (re)insurers need to increasingly focus on enterprise risk management (ERM) to manage the impact of possible claims.
Mr Mahesh Mistry, senior director, analytics, said: “A.M. Best considers man-made events such as damages to high-value asset risks, premium collection and investment risk more than offset the more muted natural catastrophe activity in the region. It is A.M. Best’s opinion that insurers will need to re-examine their risk appetite and strengthen their ERM practices to ensure risks are appropriately managed.”
A.M. Best’s full report can be accessed here.