Interview with an underwriter: The growing threat of unmodelled extreme weather exposure to MENA solar

Mohammed Zeeshan Junedi, Underwriter.

The Middle East and North Africa (MENA) region receives an impressive 25% of the world's solar energy, giving it a host of inherent and strategic advantages for solar project development.

Although we have previously seen benign natural catastrophes (NAT CAT) and natural peril activity in this area, recent unforeseen windstorms in Dubai and Saudi Arabia have caused a surge of unprecedented claims in the insurance market.

To date, conversations around NAT CAT and unmodeled extreme weather in renewables have often centred around severe convective storms in North America, leading to increasing project losses in construction and operation. However, we must not overlook the emerging threat in nascent markets like MENA where developers and operators may not have the same experience facing up to natural perils.

As we see significant investment and growth in the solar industry in MENA, we spoke with Mohammed Zeeshan Junedi, GCube’s Underwriter who specialises in the region. Our discussion focused on the key considerations when underwriting solar projects in this dynamic and evolving market.

What does the current solar landscape look like in MENA?

The solar industry in the MENA region has attracted significant attention from developers in recent years, primarily because of its regional potential for higher energy yield and efficiency, and subsequent return on investment, compared to other renewable sources like wind.

For example, today, we are seeing substantial construction activity ramping up in Saudi Arabia, which has the land mass and irradiation capacity for large-scale solar projects, as part of the Kingdom’s Vision 2030 initiative. The most recent addition to this is the 3.7 GW NREP round for 4 projects in the region.

Going forward, we anticipate that there is going to be more and more construction activity in the MENA region. However, it is important to note that most of the regions that are earmarked for these projects have not previously been explored or utilised for renewable energy projects.

What are the potential challenges of developing in the MENA region?

Renewable energy projects are increasingly being built in remote desert regions where the land is arid, flat and solar resource-rich.

However, despite using these vast desert lands for oil and gas exploration, there is a notable absence of infrastructure and, consequently, detailed data about weather patterns. As a result, the market encounters the challenge of modelling risk without sufficient data on weather events.

The local owners and operators also find it difficult to obtain reliable weather data for their project design, having to then rely on country codes and guidelines which are not suitable for an up-and-coming energy class such as Solar PV.

As construction activity continues to gain momentum, the insurance market is recognising an increased frequency of unexpected loss activity relating to natural peril events. However, with a lack of historical data, the insurance market finds it difficult to make informed decisions on appropriate terms and conditions given the potential exposures in these regions. This raises the likelihood of new construction and operational risks being inadequately addressed due to insufficient risk sharing.

What are some of the recent exposures that you have seen?

Recently, the MENA region has experienced an increase in the number of NATCAT and natural perils events.

Examples of these include:

1. Windstorms in the United Arab Emirates and Israel in early 2023 caused hundreds of millions worth of damage to solar facilities in the region.

2. Severe hailstorm incidents were reported in Saudi Arabia and the United Arab Emirates in 2023 and 2024.

3. An unprecedented magnitude 7.8 earthquake hit Syria in 2023.

4. Floods in Dubai and Abu Dhabi are being reported at increasing frequency every year.

5. A growing threat of seismic activity in Libya has been reported.

6. Strong winds have increased the frequency of dust storms in Iran.

These perils pose significant challenges as traditional modelling tools struggle to accurately depict the extent of exposures to renewable projects in the area.

How do these challenges impact the insurance market and insureds?

Primarily, we are at risk of a significant increase in retained loss severity from unmodelled exposures in these regions due to the lack of historical data.

As a result, we have owners and operators having to rely on less-than-ideal construction standards for their installations and an insurance market that is unable to underwrite the weather-related risks. This has led to an assumption-based underwriting approach with inconsistency between insurers operating in the space.

A proportion of the market continues to supply capacity with no sub-limits, unaware of the potential increased risk caused by NAT CAT events. The risk here is retaining a disproportional NAT CAT/Natural Perils severity and aggregation from one region which could have a domino effect on the entire global portfolio. As a result, this brings volatility to insurers’ books and therefore policy terms and conditions.

What needs to occur in the market to overcome these challenges?

We need to look at a better way of risk-sharing across the solar industry, between developers, owners, and insurers.

We are now seeing 1-100, 1-250 and even 1-500 modelled events occur on a yearly basis. The insurance market needs a clearer understanding of the frequency of recent (and future) NAT CAT events. This will require partnering with local meteorological stations to understand what data is available to be extracted and analysed. Insurers will also need to look beyond their models to understand the potential exposures in these regions that are now being heavily invested in.

How is GCube overcoming this challenge?

We are having positive conversations with our clients to see where we can bring in some sub-limits and peril-specific deductibles on policies. This will allow us to share the risk more evenly, but there must be an appetite from our clients and their lenders.

We hope that in the absence of data, we will be able to rely on our clients to provide local raw data from the past 7-10 years, which could then be independently modelled, producing an in-house model of NAT CAT events in the region. We can then fully understand if we need to apply more restrictive terms and conditions on the policy relating to natural perils, and ultimately provide more sustainable and fairly-priced insurance for our clients.