German hailstorms cause up to $2 billion insured losses: AIR

Severe weather in Germany is again impacting insurers and reinsurers in 2013, as two severe hailstorm events in the country look set to create up to $2 billion of losses for insurers. Hail once again proves itself as a major cause of losses for the insurance and reinsurance industry.

These two hail events in Germany may result in insured losses almost half as much as we saw recently from the severe flooding across Europe. According to Swiss Re’s sigma reports the European flooding is estimated to have caused around $4.1 billion of insured losses. If these two hail events come in at $2 billion that is a significant loss by comparison which shows the potential for hail to cause significant impact to insurers and reinsurers.

Catastrophe modeller AIR Worldwide said that the two hail events on July 27th and 28th caused from 1.3 billion euros to 1.5 billion euros (US$1.7 billion to US$2 billion) in insured losses. That puts them as the second-largest hail event on record in Germany, after a storm which struck Munich in 1984, and makes them one of the 10 most expensive natural disasters to ever hit Germany.

AIR said that the final insured loss tally may actually be even higher as many residents were away on summer holidays when the storms struck, meaning that loss reports may have been filed late. Reports suggest that around 100,000 buildings and 50,000 automobiles were damaged by the storm. AIR said there may be up to 28,000 more autos to include in the tally from a nearby Volkswagen manufacturing plant.

Because the two events happened on consecutive days AIR said that they may be considered a single event for reinsurance purposes. For some insurers and reinsurers who were not impacted by the recent flooding this event may become the largest loss event since European windstorm Kyrill in 2007.

For those hit by the flooding earlier this year these hail events will increase the loss toll. That flooding event also impacted a number of insurance-linked securities funds that had participated in collateralizing some private reinsurance contracts in Europe. It’s not clear whether any ILS funds have any exposure to this hail event, but it is possible given the magnitude of loss expected.

It’s not just Germany that has seen the loss potential of a hail storm recently. Amarillo in Texas saw a hail event which has caused over $500m of insured losses making it the tenth most costly storm in the states records. Losses from hail events are set to continue to grow as properties become more costly to repair and new developments such as solar panels on roofs increase exposures significantly.

With hail a peril responsible for increasingly large losses it is likely to find itself included in collateralized reinsurance covers, catastrophe bonds covering severe thunderstorm risks and other private contracts which make their way into the ILS market. This means that third-party capital will in the coming years end up covering an increasing proportion of hail related insured losses.