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GCC: Man-made risks require reinsurers to increase focus on ERM

Source: Middle East Insurance Review | Sep 2018

GCC countries have traditionally been exposed to low levels of weather-related claims, although Cyclone Mekunu, which struck Oman in May 2018, Super Cyclone Gonu in 2007 and flooding in the UAE and Saudi Arabia serve as reminders that the region is not entirely free of Nat CATs, said A.M. Best in a report.
 
Based on the rating agency’s data 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. The agency estimates the total capital injection to potentially amount to $1.38bn.
 
The report, ‘GCC Natural Catastrophe and Man-Made Losses Highlight Importance of Enterprise Risk Management’, said Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE have experienced lower activity for earthquakes, storms and flooding in comparison with other countries.
 
However, Mr Vasilis Katsipis, market development general manager at the agency said, “A single large catastrophe event could have a severe impact on the region’s reinsurance 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.”
 
Man-made risks
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, the report said.
 
Consequently, the agency believes that reinsurers need to increasingly focus on enterprise risk management to manage the impact of possible claims.
 
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,” said Mr Mahesh Mistry, senior director, analytics.
 
Insurers will need to re-examine their risk appetite and strengthen their ERM practices to ensure risks are appropriately managed, the report said. M 
 
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