Adamjee Insurance faces half-billion-rupee loss from Dubai floods

The company’s Pakistan operations remained profitable, but losses from its UAE auto business severely dampened overall net income In a surprising turn of events, Adamjee Insurance Company Limited (AICL), one of Pakistan’s largest and most established insurance providers, has reported a significant loss of approximately 500 million rupees due to claims resulting from the catastrophic flooding in Dubai in April 2024. This revelation came during an analyst briefing held by the company to discuss its business performance and future outlook. The floods, which wreaked havoc across the United Arab Emirates (UAE) and particularly in Dubai, have had far-reaching consequences, not only for the affected regions but also for international businesses operating in the area.

Adamjee Insurance, with its substantial presence in the UAE market, found itself exposed to considerable financial risk as a result of this extreme weather event. The April 2024 floods in Dubai were part of a larger pattern of increasingly severe weather events affecting the Arabian Gulf region. Dubai had already experienced what was then described as the heaviest rainfall in 75 years.



Some areas recording more than 250mm of rain in less than 24 hours, far exceeding the country’s average annual rainfall of 140-200mm. Climate scientists have pointed to human-induced climate change as a significant factor in the intensity of these storms. A study by the World Weather Attribution group concluded that the heat pumped into the atmosphere by human activities made the record rainfall 10-40% heavier.

This finding underscores the growing risks that climate change poses to businesses and communities worldwide, particularly in regions traditionally considered arid. The floods caused widespread disruption, with Dubai International Airport – the second busiest in the world – forced to cancel hundreds of flights. Roads were submerged, buildings inundated, and tragically, lives were lost across the affected areas.

Founded on September 28, 1960, Adamjee Insurance Company Limited has long been a cornerstone of Pakistan’s insurance industry. Listed on the Pakistan Stock Exchange, AICL has built its reputation on financial strength, and a diversified business portfolio. The company’s expansion into the UAE market was a strategic move to tap into the growth potential of the region and diversify its risk portfolio.

However, this decision has now exposed AICL to the increasing climate-related risks facing the Gulf region. In the analyst briefing, AICL’s management revealed that while the company’s Pakistan segment had achieved an underwriting profit of approximately Rs700 million in the first nine months of 2024, the overall profit was significantly reduced due to losses from the UAE segment. The impact of the UAE rain-related losses, amounting to around Rs500 million, has highlighted the vulnerability of AICL’s heavily motor-focused UAE portfolio to extreme weather events.

Adamjee Insurance’s UAE operations, which account for nearly 30% of its non-life premium income, have been a significant driver of the company’s growth in recent years. However, the concentration of this business in the motor insurance segment – comprising 85-90% of AICL’s UAE portfolio – has left the company particularly exposed to the type of widespread flooding experienced in Dubai. The management acknowledged that the UAE segment has suffered losses in both 2023 and the first nine months of 2024, primarily due to three rain-related flooding events that have increased claims from the motor insurance segment.

This series of events has not only impacted the company’s bottom line but has also raised questions about the sustainability of its current business model in the face of increasing climate-related risks. In response to these challenges, AICL’s management has outlined plans to diversify its UAE business beyond the motor segment. The company aims to expand into other areas such as health and marine insurance, although growth will still be driven by the motor segment, particularly as interest rates decline in the UAE.

The management expressed optimism about the future profitability of the UAE segment, barring any similar unexpected events in 2025. However, they also cautioned that reinsurance costs are likely to increase in light of these floods, which will have an impact on margins. The losses faced by Adamjee Insurance are part of a larger industry-wide impact.

Reinsurance broker Gallagher Re has estimated that the property market insured loss from the April 2024 flooding in the UAE alone could be between $1.8 billion and $2.3 billion, with additional motor insurance losses ranging from $350 million to $650 million.

These figures underscore the magnitude of the challenge facing the insurance industry as climate change increases the frequency and severity of extreme weather events. For companies like Adamjee Insurance, with significant exposure to regions at high risk of climate-related disasters, the need for robust risk management strategies and potentially, a reevaluation of their geographical focus, has never been more pressing. Despite the setbacks in its UAE operations, Adamjee Insurance remains a formidable player in the Pakistani insurance market.

The company’s business mix in terms of gross written premiums (GPW) as of 2023 stood at 44% fire, 35% motor, 12% health, 6% marine, and 3% miscellaneous. The most profitable segment is miscellaneous, which includes crop loan insurance and bank-related insurance. AICL’s investment strategy has also played a crucial role in its financial performance.

The company earned 3.9 billion rupees of investment income in the first nine months of 2024, matching its performance for the entire year of 2023. This income was derived from a mix of 67% equities, 20% term deposits, 8% fixed income securities, and 5% income from subsidiaries.

The company’s management has indicated that the equity investment mix, which has remained relatively stable at 67-69% for the last three years, consists of strategic long-term investments that are likely to remain in place going forward. As Adamjee Insurance navigates the aftermath of the Dubai floods and their impact on its financial performance, the company faces both challenges and opportunities. The increasing frequency and severity of climate-related events in the Gulf region will necessitate a reevaluation of risk models and pricing strategies, particularly in the motor insurance segment.

However, the company’s strong position in the Pakistani market, coupled with its diversified investment portfolio, provides a solid foundation from which to address these challenges. The management’s plans to diversify the UAE business and potentially expand into new segments could help mitigate future risks. Moreover, the expected growth in all general insurance segments due to declining interest rates in Pakistan presents opportunities for AICL to strengthen its domestic operations.

The company is well-positioned to capitalize on potential growth in the motor segment, particularly if the State Bank of Pakistan increases the current Rs3 million-per-car auto financing limit. The significant losses faced by Adamjee Insurance due to the Dubai floods serve as a stark reminder of the far-reaching impacts of climate change on the insurance industry. As extreme weather events become more frequent and severe, insurance companies will need to adapt their strategies, diversify their portfolios, and potentially reassess their geographical focus.

For Adamjee Insurance, the path forward will likely involve a delicate balance between maintaining its strong position in the Pakistani market, diversifying its UAE operations, and implementing more robust risk management strategies to account for climate-related events. As one of Pakistan’s oldest and largest insurance providers, AICL’s response to these challenges will be closely watched by industry observers and could set a precedent for how other insurance companies in the region adapt to the realities of climate change. The company’s ability to navigate these turbulent waters will not only determine its own future but could also shape the broader insurance landscape in Pakistan and the Gulf region for years to come.

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