Recent severe European windstorm activity from storms Dudley, Eunice and Franklin (Ylenia, Zeynep and Antonia) could drive losses of as much as EUR 5 billion for German, UK and Dutch insurers, Fitch Ratings has warned, but reinsurance could take the lions share.
Analysts at Fitch Ratings believe that the gross impact of these storms, in being as much as EUR 5 billion, will be significantly reduced by insurance carriers reinsurance arrangements, with the net impact likely to fall to below EUR 2 billion.
“Storms Dudley, Eunice and Franklin, which have battered much of northern Europe in recent days, will dent non-life insurers’ profits, particularly in Germany, the UK and the Netherlands,” Fitch Ratings explained.
Adding that, “We expect gross insured losses to be as much as EUR5 billion. However, reinsurance should reduce this to under EUR2 billion and, in most cases, we do not expect the losses to burn through insurers’ earnings, materially erode capital or affect ratings.”
In Germany alone, Fitch is anticipating insured losses of over EUR 2 billion, which seems entirely reasonable given the very early loss estimate of EUR 1.6 billion from actuarial firm MSK.
Highlighting the hours clause issue we commented on in this article, Fitch noted, “Insurance claims net of reinsurance are harder to estimate because reinsurance recoveries will depend on whether the storms count as a single combined event or as separate events under the terms of each reinsurance contract.”
Despite this, Fitch believes net storm claims in Germany, after reinsurance, will fall to no more than EUR 750 million, so only adding around 1pp to the non-life sector’s net combined ratios (net claims and expenses to net premiums).
For the UK, Fitch said, “Aggregated losses from all three storms could be similar to those from comparable series of storms in previous years, which have averaged about GBP400 million.”
Flooding is a potential driver of higher losses for the UK, with many rivers reaching flood stage after storm Franklin, Fitch adds.
“While we do not expect the storms to affect UK non-life insurers’ ratings, the losses will weaken profitability, which is already under pressure from claims inflation and subdued premium rates,” the rating agency said.
For the Netherlands, Fitch is expecting over EUR 500 million of losses from these storms.
“The losses may increase further due to persistent high winds but we do not expect the storms to add more than 3pp to the Dutch non-life sector’s combined ratio,” Fitch said.
Adding, “This still represents a significant dent to profitability but most major insurers should be able to absorb the impact given their reasonable underlying profitability and diverse business models.”
Of course, these three strong European windstorms have also caused some damage in other countries, such as Austria, France, Belgium, Ireland and Poland, so the footprint is wider than just UK, Germany and the Netherlands, which means the ultimate loss for the insurance and reinsurance industry could be a little higher.
We understand PERILS AG, the aggregator of catastrophe loss data in Europe, is only investigating the first two storms so far, with them being considered a single event.
The close proximity of these European windstorms to each other could lead to some challenges and questions over which damage should be attributed to and how they fall under the most commonly used 72 hours clause for reinsurance purposes.
Despite rising loss estimates, there is not expected to be any impact to European windstorm catastrophe bonds, although some aggregate exposure is possible, in terms of deductible erosion for industry loss retro bonds.
More widely, there could be some collateralised reinsurance or private ILS exposure, as well as exposure through quota share structures for ILS markets. But this would be anticipated to be relatively minor, given how wide an area this loss is spread over and the fact not single reinsurance program would be expected to take a particularly significant hit.
Finally, executives at Conduit Re explained this morning that they anticipate the recent European windstorms will trigger the lower-layers of some European catastrophe reinsurance programs.