S&P Global Ratings said motor insurers in the UAE, who increased their premia by up to 50% for certain coverage over the past year citing frequency and costs of claims, are likely to go in for another round of hikes in view of the recent floods.

Aditionally, rates for insuring commercial and residential property risks could increase as local insurers and international reinsurers review their pricing following a rise in the frequency and severity of rainstorms in the UAE and neighboring countries, the rating agency said in a report on Tuesday.

Last week, the UAE and Oman experienced unprecedented rainfall leading to flooding that turned many main roads, particularly in Dubai, into waterways, leaving motorists stranded and causing widespread travel disruption and damage.

"In addition to rate hikes, we foresee an increase in demand for insurance, alongside planned infrastructure projects following the recent floods. This should support an increase in insurance penetration (measured as gross written premiums divided by gross domestic product), which stood at about 3.1% in 2023 compared to a global average of about 5.5%."

There are currently about 60 licensed insurers in the UAE, of which the vast majority underwrite risks related to property/casualty, including motor business.

S&P said while it's too early to assess the full financial impact of this natural disaster on the UAE's insurance sector, an earnings impact for most insurers is likely. However, most will be able to absorb related claims as they enjoy robust capital and liquidity buffers.

However, "the capital and liquidity buffers of insurance companies with weaker capitalization could be tested".

(Writing by Brinda Darasha; editing by Seban Scaria)