UAE insurers ride underwriting recovery as geopolitical risks build, says AM Best

UAE insurers delivered a sharp recovery in profitability in 2025, supported by rate increases, underwriting discipline and benign catastrophe experience, even as geopolitical tensions in the Middle East introduce new uncertainty, according to AM Best.

The escalation of the conflict linked to the US and Israeli war with Iran has heightened risk perceptions, but the direct impact on insurers’ core underwriting results remains limited so far, observed AM Best’s market segment report.

“While regional conflict creates macroeconomic uncertainty, its direct impact on core underwriting results to date remains limited,” said AM Best’s report.

The rating agency noted that war-related losses have been minimal to date, with UAE insurers largely insulated by reinsurance structures.

“Where losses have arisen, the impact on domestic insurers is largely muted due to the high use of facultative reinsurance and minimal retention,” AM Best said.

However, the situation remains fluid, with disruption in the Strait of Hormuz and continued regional instability raising concerns for both underwriting exposures and investment portfolios.

“Uncertainty in the Middle East remains high,” AM Best added, pointing to ongoing tensions despite a ceasefire announcement in early April.

The report highlights that standard UAE policies typically exclude war risks, with coverage provided via add-ons and largely ceded to international reinsurers.

Any increase in reinsurance costs is therefore expected to be passed through to policyholders.

Underwriting recovery drives performance

Before the escalation in regional tensions, UAE insurers had already returned to strong technical performance.

Insurance revenue for listed insurers rose 17% in 2025, driven by rate increases, portfolio growth and improved pricing discipline.

At the same time, profitability improved significantly, the ratings firm observed.

“Consolidated net profits after tax for the listed insurers increased by a staggering 46% year-on-year,” said AM Best.

The absence of major catastrophe losses, particularly compared with the severe rain events of 2024, supported a favourable claims environment.

Improved loss ratios across key lines reflected stronger underwriting discipline, enhanced analytics and greater adoption of risk-based pricing frameworks.

Motor insurance played a central role in this recovery, AM Best noted.

“Corrective measures such as rate increases and greater customer segmentation increased average motor revenues by around 30%,” the report said.

This repricing helped restore underwriting profitability, although pressure remains in parts of the portfolio due to rising repair costs and inflation.

Medical insurance, meanwhile, continues to present challenges.

Insurers are struggling to balance competitive pricing with rising claims costs and medical inflation, estimated at around 11.5% in the UAE.

AM Best said it expected loss ratios in the segment to deteriorate over time as policyholders make greater use of mandatory coverage.

Reinsurance and capital strategies evolve

The report identified a shift in reinsurance strategy following losses from the 2024 rainfall events and rising reinsurance costs.

UAE insurers are increasingly moving away from quota share arrangements towards excess of loss (XoL) structures.

“Many insurers reduced their reliance on quota share treaties in order to retain a larger share of underwriting income,” AM Best said.

This shift allows insurers to protect against high-severity losses while improving net revenue retention, provided underwriting discipline is maintained.

At the same time, strong reinsurance panels are helping to mitigate counterparty risk, even as the potential for increased claims raises concerns around recoverables.

Balance sheet resilience tested by volatility

Beyond underwriting, geopolitical tensions are beginning to affect insurers’ investment portfolios.

Market volatility has impacted equity valuations and bond yields, while longer-term concerns have emerged around real estate valuations if investor sentiment weakens.

Nevertheless, AM Best views the sector as resilient.

“Despite having significant exposures to real estate and equities, AM Best considers domestic insurers’ balance sheets sufficiently resilient to absorb movement in these asset values,” the report said.

The ratings agency also points to improved returns, with average return on equity rising to 11.7% in 2025 from 8.9% the previous year.

Climate and regulatory pressures build

Alongside geopolitical risks, climate exposure is becoming an increasing focus for the sector, AM Best’s study reported.

More frequent pluvial flooding events and recent heavy rains have highlighted the need for improved catastrophe modelling and exposure management.

Insurers have responded by enhancing modelling capabilities and integrating climate risk into their risk frameworks, in line with regulatory expectations.

The UAE’s Central Bank is also increasing its focus on climate risk and solvency oversight, with some smaller insurers still under pressure.

Seven listed insurers were reported to be in breach of regulatory solvency requirements, collectively accounting for 12% of market revenue.

Looking ahead, AM Best said it expects both geopolitical developments and structural market trends to shape the outlook for UAE insurers.

However, with strong underwriting foundations and disciplined risk management, the sector appears well positioned to navigate the current environment.

“AM Best expects insurers to gain a clearer understanding of the implications as developments unfold,” the rating agency added.