Worldwide: International Reinsurance Newsletter - 5th Edition, September 2015

Last Updated: 11 September 2015
Article by Clyde & Co LLP

UK: Soft markets lead to hard times....

By David Abbott and Julie Tripp

On 29 August 2005 Hurricane Katrina made landfall on the Louisiana coastline. Just shy of one month later, Hurricane Rita tore across southern Florida, hitting the Texas-Louisiana border after crossing the Gulf of Mexico. About one month after that Hurricane Wilma, the most intense tropical storm on record in the Atlantic basin, ripped across the Gulf in the opposite direction, devastating parts of the Caribbean, Mexico and Florida. This 3-storm combination resulted in one of the most widespread loss recovery situations the US property/casualty market had ever seen. Even with the collegiate spirit and robust wordings in the market there were issues, particularly with business interruption. Some companies are still dealing with claims a decade later.

Astonishingly there has been only one major hurricane landfall in the US in the last eight years, despite a number forecasts to the contrary during that period. This year, the US National Hurricane Centre has forecast a "below-average" hurricane season for 2015. This low in North American hurricane activity has been a key factor in the recent softening of market conditions. Indeed, general property market conditions are the softest they have been since before 2000. Unfortunately, with soft markets can come soft drafting.

Industry Loss Warranties – the simple choice?

One type of cover taking centre stage at the 1 January renewals was the Industry Loss Warranty (ILW). ILWs, developed in the 1980s, have been on the increase since Superstorm Sandy in 2012. These covers are designed to respond once a loss has hit a certain threshold on an industry-wide basis. They usually nominate a specific organisation's reported figure to be the benchmark – for example Property Claims Services (PCS), Swiss Re's sigma or Munich Re's NatCAT service.

It is essential to draft these types of wordings tightly, however, as pitfalls abound. The most common relate to the suitability of the nominated index. For example, where an ILW's trigger is phrased as "non-marine property losses arising in North America" in excess of GBP 5 billion following a named windstorm, it would be prudent to nominate a publication that provides its estimates based on non-marine property only (some publications do not differentiate between marine and non-marine property in compiling their indices). If the trigger specifies a geographical region, it is important to ensure the publication nominated also covers that region, and not just a subset.

Where the publication nominated does not suit the trigger a reinsurer may use this to challenge the claim, and may even be permitted to substitute alternative figures proving its case. Where the policy includes an arbitration clause, the situation may become more difficult still, as in many cases arbitration clauses provide that the arbitrators need not rely on the strict letter of the law in coming to their decision. Arbitrators are often keen to find a "middle way" where the legal (and commercial) situation is not clear cut. In addition, if successful, the reinsured will not be able to rely on the outcome of the arbitration in relation to any other disputes arising under the same (or same type of) policy with its other reinsurers. All of a sudden a simple cover has turned into a complicated one.

Hours clauses take their time

Another area to consider when dealing with natural catastrophe claims is the so-called "hours clause". This clause allows the reinsured to aggregate losses arising from the same originating cause within a set time frame. Traditionally this is 24-48 hours for a hurricane or 72 hours for flood, and 168 hours for other non-named perils.

Recently, however, hours clauses have emerged that go rather beyond tradition. Frequently hours clauses now have time periods in relation to flood or snow-related losses of 504 consecutive hours, or 21 days. In addition, some hours clauses now permit the reinsured, as "sole judge", to aggregate losses from other catastrophes into the same loss, so long as those catastrophes occur within the relevant time period. We expect these sorts of clauses, particularly where the reinsured has sole discretion to deal with the losses as it chooses, to be difficult to challenge.

Beware the unexpected threats of climate change

Hurricanes and typhoons are often considered the "paradigm" example when it comes to considering the effects of and losses arising from natural catastrophes. "Superstorm Sandy" started life as a hurricane, although it became "extratropical" on reaching New Jersey. It continued to produce wide-ranging damage, including severe flooding in New York City.

It is worth bearing in mind that not all of the effects of climate change result in hot-weather events. Rising temperatures result in moisture being trapped in the air for longer periods, which results in more intense storms – both rain and snow. Perhaps one of the starkest recent examples of this is the series of snowstorms affecting New England earlier this year, which produced record-breaking snowfalls coupled persistent cold temperatures (making it difficult for municipalities to clear the snow from the roads). This combination resulted in particularly heavy levels of claims, including complex business interruption claims.

Some policies now include a "climate change" exclusion, which is designed to exclude from the cover all losses arising as a result of "climate change" or "global warming". To date such an exclusion has not been upheld by the courts, who have cited a lack of evidence proving climate change as a proximate cause. Experts have commented, however, that within the next 10 years there is likely to be sufficient data available to support an argument that climate change has directly caused a particular weather phenomenon. Such data will likely thrust this sort of exclusion into the limelight in future.

Until then, however, reinsurers should bear in mind that catastrophe losses are likely to come from unexpected corners, and soft wordings may bite at the unlikeliest of times.

UAE: Trends in the reinsurance landscape

By Peter Hodgins and Tom Bicknell

The UAE Insurance Authority has recently released its Annual Statistical Report for the Insurance Sector in the United Arab Emirates for 2014. The Report provides a comprehensive overview of the (re)insurance landscape in the UAE.

The key points highlighted in the report are:

Continued growth in the insurance market – insurance premiums for the UAE grew by 13.5% to AED 33.5 billion (approximately USD9.12 billion) in 2014, a 1.3% increase on the 2012-2013 growth rate.

The dominance of compulsory lines – general insurance remained the major contributor to the total premiums in the UAE accounting for AED24.9 billion (approximately USD6.8 billion) or 74.3% of total written premiums in the market, albeit this represents a 2% reduction from 2013. However, health insurance accounted for approximately USD3.03 billion of this business.

The split between local companies and foreign branches – the share of the market between local and foreign companies remained in approximately the same proportions as 2013 with life and funds formation premium still being dominated by foreign issuers (81.4% of underwritten premium). This proportion is, in our view, consistent with the life sector still being in a particularly early stage of development in terms of local expertise. By comparison, local insurers maintained the larger market share in respect of property and liability coverage with 75.1% of underwritten premiums.

Fragmented insurance landscape – there are 60 insurers (34 locally incorporated insurance companies and 26 branches of foreign insurers) and 164 insurance brokers (159 locally incorporated and 5 branches of foreign brokers). 13 insurers continue to operate on a composite basis. 10 insurers are licensed only to conduct life insurance and fund accumulation business. There are 11 insurers operating in the takaful sector.

Reliance on reinsurance capacity – the local insurers continued to be heavily reliant on reinsurance, with overall retention rates for general insurance business remaining constant at around 55%. However, there are distinct variations in the level of retention across particular lines:

Losses ratios – the market has experienced deteriorating loss ratios:

Looking to the future, it is probably trite to observe that premium growth will continue in the UAE given the low level of penetration in the UAE by comparison to developed economies. However, whether the rate of growth (a CAGR of 17% over the last six years) can be maintained is questionable. There is speculation that the declining oil prices in the region could result in a decrease in investment in new commercial projects with the knock on effect of reducing demand for insurance coverage. Although to some degree this will potentially be offset by the attraction of the UAE as a stable environment whilst geo-political uncertainty remains in the wider Middle East region.

Underwriters continue to comment on the soft rates across many lines in the region (which is reflected in the deteriorating loss ratios). This will undoubtedly continue whilst excess capacity exists in the reinsurance market facilitating the continued levels of low retentions by the local insurers. We are nevertheless seeing an increase in reinsurers seeking to establish a local presence to provide on-the-ground expertise to manage underwriting and claims. Whilst other financial hubs continue to develop in the region (eg the Qatar Financial Centre and the Abu Dhabi Global Market), the DIFC remains the popular choice for reinsurers keen to set up a MENA reinsurance hub. In this regard, the lack of underwriting expertise in many specialist areas, particularly in commercial lines business, means that the local market will continue to be dependent on outside expertise in its coverage of large or complicated risks. In addition, the continuation of the moratorium on the issuance new insurer licenses by the Insurance Authority means that fronting arrangements will continue to develop as a mechanism for accessing the local market.

The UAE Insurance Authority has not directly sought to discourage the local industry's reliance on reinsurance. Instead it has introduced measures to strengthen the insurance industry, primarily through the enactment of the Financial Regulations in 2014. These regulations introduce for the first time a risk-based capital requirement for insurers. Whilst commentators have suggested that the regulations do not adequately discourage the current levels of reliance on reinsurance, the clear intention of the Insurance Authority is to encourage consolidation and to create industry players who have the necessary financial strength to retain a greater percentage of the risks that they underwrite.

In a similar vein, the Insurance Authority has recently reignited the discussion on composite insurers an indicated that it expects such entities to segregate the life and non-life business into separate entities. It remains to be seen if this will have the effect of leading to consolidation, particularly in the life insurance sector.

A similar drive has been experienced in the insurance broking sector. Increased capital standards introduced at the end of 2013 has led to the exit of many smaller brokers. The result being the overall number of brokers decreasing from in excess of 200 to 164.

Overall, the insurance market in the UAE looks set to continue its solid growth with local participants continuing to be heavily reliant on the international market.

To read this Newsletter in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.