Insurance losses from storm Niklas not expected to trouble cat bonds

by Artemis on April 1, 2015

Damage from wind storm Niklas, which struck northern European countries, particularly Germany, over the last day or so is not expected to amount to insurance or reinsurance industry losses that would come near troubling catastrophe bonds.

Storm Niklas is one of the strongest wind storms to impact Europe in recent years, with wind speeds recorded of up to 192 km/h (120 mph) causing wide-spread damage across many countries, with Germany thought to be the worst hit.

Hurricane force wind gusts caused damage to properties and cars, downed power lines, and interrupted air, rail and road travel. There had also been a concern that storm Niklas would push a storm surge onto the German coastline, but this did not materialise.

Latest reports suggest as many as nine lives lost across Germany, Switzerland and Austria. In the Netherlands damage was estimated as “several million euros”. Germany is expected to have suffered much higher losses, with early estimates of economic damage and impact from the disruption said to be EUR100m or greater.

How that translates into insurance or reinsurance industry losses and whether there will be any impact to the reinsurance industry remains to be seen. It’s still too early for any losses to have been reported.

However, insurance-linked securities (ILS) and catastrophe bond investments manager Plenum said that it does not expect to see any impact from storm Niklas.

Niklas’ wind speeds were considerably below European windstorms such as Lothar, which saw peak gusts of over 270 km/h, Plenum noted.

As a result the ILS manager said; “We do not expect that the insured losses caused by Niklas will come close to the levels, which would be necessary to trigger notional losses of CAT bonds.”

As ever, despite it being unlikely that catastrophe bonds would face any loss from such a storm as Niklas, the fact that ILS fund managers are increasingly exposed to regional European reinsurance programmes through their participation on a collateralized basis, means that there is always the potential for some impact, albeit small.

Whenever a natural catastrophe loss results in losses high enough to trigger reinsurance programmes there is the potential that collateralized reinsurance layers are hit. While storm Niklas is not expected to have a particularly large impact on insurers, there is always a slim chance that some impact could leak into the reinsurance market and as a result ILS and collateralized space as well.

The latest update from risk modeller AIR Worldwide, which covers both windstorm Niklas and Mike, can be found below:

Extratropical Cyclones Niklas and Mike Cause Damage in Northern Europe: AIR Worldwide

BOSTON, April 1, 2015 – According to catastrophe modeling firm AIR Worldwide, currently battering northern Europe with gale-force winds, ETC Niklas is reportedly one of the worst storms to affect Germany in recent years. High winds and heavy rains from Niklas have caused serious building damage in Germany, and triggered flood warnings across central and southern Germany. In the UK., wind gusts of nearly 128 km/h on the Norfolk coast were reported on the evening of Monday, March 30, as Niklas moved eastward from the North Sea into the Baltic. As of March 31, 08:00 UTC, ETC Niklas was anticipated to continue its slow northeastward motion.

“The 2015 season has been characterized as a North Atlantic Oscillation (NAO) positive phase, with a higher-than-normal subtropical high (Azores high) and a lower-than-normal Icelandic low reaching from Greenland to the Baltic states,” said Sebastian Diebel from AIR Worldwide. “The increased pressure differential causes westerly winds to intensify between 50-60°N latitude, which favors stronger winter storms crossing the Atlantic Ocean.”

Diebel continued, “On March 28, a weak low pressure system (Mike) formed west of Iceland, and then rapidly developed and moved into the UK on March 29. Also on March 29, another low pressure system (Niklas) formed; however, this system was more intense than Mike. In the meantime, Mike continued to strengthen and migrated into the Baltic Sea, leading to steady rain and strong winds over western and central Europe, particularly Germany.”

Mike’s highest wind speeds of 151 km/ were detected at the meteorological weather station on the Brocken, the highest peak in the Harz mountain range, located in Saxony-Anhalt. On March 30, Niklas strengthened and began to follow a path similar to the one taken by Mike the previous day. However, Mike began to weaken as it moved into Sweden and Finland on March 30.

Diebel observed, “On March 31, Niklas developed into a strong storm centered over Denmark and the southern Baltic Sea, bringing high winds and heavy precipitation to Germany and parts of Great Britain. With wind gusts of more than 190 km/h (recorded on Zugspitze, Germany’s highest mountain), Niklas gave Germany a heavy battering on Tuesday. In fact, the German Weather Service issued a severe weather warning for northern and southeast Germany, with wind gusts from 10 to 11 on the Beaufort scale anticipated, and winds of up to 12 on the Beaufort scale projected on mountaintops.”

“By the evening of March 31, the cold front of Niklas arrived in the alpine region of Germany, causing widespread intense precipitation and strong squalls,” said Dr. Bernhard Reinhardt from AIR Worldwide. “By blocking and reflecting Niklas’s strong winds, the mountains are causing additional intensification of the wind speeds and precipitation in the alpine forestland. Wind measurements for Niklas across Germany range from 137 km/h in Stötten auf der Ostalb, 151 km/h in Feldberg im Schwarzwald, 150 km/h in Großen Arber, up to the maximum reported measurement of 192 km/h on Germany’s highest mountain, Zugspitze.”

Dr. Reinhardt noted, “Currently, Niklas is anticipated to continue to move north and east, and weaken into Wednesday. By Saturday, normal weather conditions in the region are anticipated.”

On March 29 and 30, high winds from ETC Mike felled trees in parts of Germany, leading to delays in train service and highway closures. This storm, however, caused much less damage than ETC Niklas, which struck the same region shortly thereafter.

On March 30, 2015, strong winds from ETC Niklas felled trees in parts of the UK, disrupting both road and railway travel. In some locations—such as the Dartford Crossing QEII Bridge on the M25—roadways on bridges were closed as a precaution. While gusts of more than 112 km/h were reported in parts of North Wales, the Bristol Channel, and East Anglia, the highest gusts (128 km/h) from Niklas were recorded along the Norfolk coast, bordering the North Sea.

As of March 31, 15:00 UTC, winds in Munich are reportedly strong enough to knock pedestrians off their feet. Indeed, in parts of Germany, wind gusts from Niklas have overturned trucks. Regarding the effects of Niklas on buildings in the region, severe building damage due to high winds has been reported in parts of Germany as of March 31. Fallen trees have also caused damage to roofs and cars. According to Germany’s national weather center, Deutsche Wetter Dienst (DWD), heavy rain from Niklas is causing flooding in central and southern Germany. In some locations, the downpour has washed away soil, undermining trees and buildings and causing them to topple or collapse.

Niklas has also inflicted major delays to the country’s domestic and international train service. According to Deutsche Bahn, the storm has caused major delays and cancellations to long distance trains in Lower Saxony, Mecklenburg-Western Pomerania, North Rheine-Westphalia, Bavaria, and Baden-Würrtemberg. In addition, at least two trains collided with, or were hit by, fallen trees.

High winds and heavy rains from ETC Niklas resulted in flight cancelations at airports in Schiphol, Frankfurt, Hamburg, Berlin, and Munich.

Further, Niklas has caused widespread damage to building façades and roofs across Germany, Austria, and Switzerland, including fallen roof tiles. In some cases, light wooden or metal roofs were completely torn off; for example, in Zurich, Switzerland, a metal roof was ripped off a church. Also in Switzerland, the roof of a chocolate factory in Flawil, St. Gallen, was damaged, causing business interruption as well as property damage. In Luzern, Switzerland, the façade of a mid-rise residential building was damaged.

Damage from Niklas has also been reported in the Netherlands, Belgium, and the Czech Republic. For example, in Belgium, many trees were uprooted by the storm and hundreds of homes experienced power outages.

According to AIR, most of the residential buildings in the United Kingdom are detached, semi-detached, or terraced (row) houses and are primarily of masonry construction. Single family homes in Germany, Denmark, the Netherlands, and Poland, are also predominantly of masonry construction, although a small percentage are wood frame, and are mostly low-rise. Sweden and Finland’s building stock have a much higher percentage of wood frame buildings. Mid-rise residential buildings generally have exterior non-load bearing walls made of masonry, although they may have light-gauge steel stud walls or concrete panels. Under high winds, most of the damage in built up areas is to rooftops and chimneys of residences, although walls and windows are often damaged by flying debris. Large apartment and condominium buildings often have a higher level of engineering and are more resistant to wind damage. Also, wind damage ratios for tall buildings are lower because tall buildings are generally well designed and constructed. However, balconies, awnings, and sliding glass doors are susceptible to wind damage.

According to AIR, commercial exposures use a wider variety of construction types. Smaller buildings are usually masonry and perform similarly to residential buildings under strong winds. Larger buildings are generally reinforced concrete or steel, and wind damage is typically to nonstructural components such as mechanical equipment, roofing, cladding, and windows. Large commercial buildings often have a large amount of external glass, which is quite vulnerable to wind damage.

According to AIR, floods can affect a significant portion of low- and mid-rise buildings, particularly the cellars. Risk is particularly high for finished cellars with furniture and appliances; some may contain entire apartments. Usually, heavily used cellars have better flood defense mechanisms than unfinished ones. For tall buildings, flood vulnerability is usually mitigated by flood defenses, although lower floors and cellars often contain services, fixtures, and electrical and mechanical fittings.

Dr. Reinhardt concluded, “As of March 31, 2015, ETC Mike and ETC Niklas are located over the Baltic Sea. Centered just offshore of the southern tip of Sweden, high winds from ETC Niklas are continuing to impact exposures in Germany. “

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