Aon Benfield sees new challenges from European winter storms

Aon Benfield has issued a briefing on uncommon European winter storm tracks derived from research with the University of Cologne. The briefing hints at a lower total number of events in the future but shows intense storms moving across the North and Baltic seas on a similar path to windstorm Kyril.

European windstorm events are receiving increasing press and attention from the reinsurance industry and we are now seeing regular issuance of catastrophe bonds with exposure to European windstorm events. This shows the reinsurance industry acknowledges the large potential for loss from these winter storms and is attempting to hedge the risks. However in Eastern Europe the industry lags behind and much exposure is potentially under-insured still.

The briefing suggests that recent European winter windstorms such as Klaus, Kyril and Xynthia have not followed the dominant North Atlantic storm track and have tended to travel east on a lower latitude.

Dr Joaquim Pinto from the Institute of Geophysics and Meteorology at the University of Cologne explains: “Scientific research shows that the storm climate in Europe has changed considerably over the past 130 years, exhibiting decadal periods of high and low activity. The last decade was characterized by average or calm conditions, following a period of strong activity which peaked during the early nineties. The occurrence of recent storms like Klaus, Kyrill and Xynthia are therefore considered to be a part of the climate system’s natural variability.”

Dr Adam Podlaha, international head of Impact Forecasting, commented: “Central and Eastern Europe’s insurance market penetration continues to grow, resulting in a gradual increase in exposure. While the meteorology may remain mostly unchanged, losses in the near future might increase, thus heightening the appetite for understanding the risks to the region.”

Dr Alexandros Georgiadis, catastrophe model developer at Impact Forecasting, added: “Existing catastrophe models only partially capture the climatological variability of European windstorms. The next generation of catastrophe models must address these challenges as model developers expand coverage into new European territories, responding to higher insurance market penetration in Central and Eastern Europe.”

As a result of this Impact Forecasting, Aon Benfield’s catastrophe modelling team, are working with the University of Cologne to create a pan-European windstorm model. They’re using the latest research and data and aiming to develop comprehensive loss estimations and analysis on the impact to reinsurers from extreme European windstorms.

These further developments in European windstorm risk assessment will help to push the market for European catastrophe bonds forwards and could spur more re/insurers into issuing insurance-linked securities as a way to hedge their European winter storm exposure.

You can download Aon Benfield’s briefing here in PDF format.