German hail storm insurance industry loss to grow: SCOR

French reinsurer SCOR has suggested that the insurance industry loss from recent catastrophic hail storms in Germany could reach as much as EUR3 billion. That is significantly higher than earlier estimates from risk modellers who put the loss at up to EUR1.5 billion.

The loss is actually from two wind storm hail events which struck Germany. The first hail storm, named Andreas occurred on consecutive days in July, the 27th and 28th. The second event SCOR refers to in its loss estimate is Ernst, which struck Germany later in the summer.

The original estimate we wrote about of up to EUR1.5 billion, published by risk modelling firm AIR Worldwide, was solely for the Andreas hail event, whereas SCOR is including another windstorm which produced significant hail, Ernst, in its forecast for the insurance industry to face up to EUR3 billion of losses.

SCOR said that most claims from these events have been in property and motor lines of business, particularly across north-eastern areas of Westphalia, Lower Saxony and Baden-Württemberg. The timing of the events meant that many policyholders were on holiday which has delayed the filing of claims leading to a creeping loss estimate.

If SCOR is correct, and losses move much higher, this will become the most significant and costly hail event ever to hit Germany. SCOR said that its estimate of EUR3 billion is still preliminary, particularly for Ernst the more recent hail event, as claims may still be being filed for losses due to the storms hitting during the peak holiday season when people are away. So it could be some more weeks until the final loss toll is understood.

The scale of this loss event is getting close to the level where it could have a minor impact on the markets we cover. By this we mean that there could be some exposure within collateralized reinsurance firms or funds which provide catastrophe reinsurance protection in Germany on a private transaction basis. Any impact on the ILS or alternative reinsurance capital market is likely to be very small as it would only bear a very small amount of the ultimate loss.

If the loss from these hail events hits EUR3 billion, which is just over $4 billion, it will certainly make some traditional European reinsurers year reasonably loss heavy when added to the central European flooding this year. It wouldn’t however be enough to significantly move rates even in the loss affected area market participants we’ve spoken with believe.

Hail increasingly features in reasonably large multi-billion dollar losses. As a result it will find itself featured in collateralized reinsurance covers, catastrophe bonds covering severe thunderstorm risks and other private contracts which make their way into the ILS market. Third-party capital will end up covering an increasing proportion of hail related insured losses in years to come and structures will likely be devised to transfer hail risk more efficiently into the capital markets.