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German flood insurance losses likely EUR 1 billion: Fitch


Insurance industry losses from recent floods in Germany will likely reach the EUR 1 billion ($1.14 billion) point, according to Fitch Ratings. The losses may weaken the underwriting profitability of the sector and, on top of losses in France and other European countries, are likely to hit some reinsurance layers.

Bavaria flooding image via the BBCFitch Ratings said the majority of claims are likely to be from homeowners’, contents and motor insurance policies and to a lesser extent business interruption insurance.

The insurance companies with high market shares in the homeowners’ and motor sectors will likely take the biggest share of the losses, including public-sector insurers such as Versicherungskammer Bayern and SV SparkassenVersicherung, which both operate in the hardest-hit regions, according to Fitch.

Added to the expected EUR 2 billion or greater insurance industry losses from French flooding and storms, as well as losses suffered in Belgium and the Czech Republic, which also were hit by flooding, the European insurance and reinsurance sector is set for another reasonably high bill for early summer storms and floods in 2016.

Previously, the German insurance industry association, the GDV or Gesamtverband der Deutschen Versicherungswirtschaft, said that it expected the one storm named Elvira would cause at least $510m (EUR450m) of losses.

As ever, once the worst of a flood disaster has passed the true extent of the losses become clearer and it looks like the German industry will suffer a greater loss than had initially been thought.

The major German reinsurance companies, such as Munich Re and Hannover Re, are dominant in their own nation and so any impact to reinsurance layers is likely to hit them first, with some then being shared to other reinsurers participating.

However, the losses in Germany alone at EUR 1 billion may not result in any significant reinsurance industry loss, but alongside the French floods there may be a chance of some Europe-wide catastrophe covers seeing deductibles eroded and perhaps facing some losses.

Fitch said that the economic loss from the German floods are likely to be significantly higher than EUR1bn, as only around one-third of residential property insurance policies in Germany include natural hazard cover. Fitch explains that in areas prone to flooding natural hazard cover can either be unavailable or very costly for homeowners.

“However, much of the recent flooding has been caused by extreme local rainfall in areas that have not been considered at high risk of flooding, meaning that insurance would have been cheaper and easier to obtain. The proportion of homes covered could therefore be higher than in the last major German floods in 2013,” Fitch Ratings explained.

An insurance industry loss of EUR1bn would be “equivalent to the entire expected natural catastrophe losses that are factored into our 2016 forecasts,” Fitch says.

The ratings agency said that it is expected that excess-of-loss reinsurance cover will help to soften the impact on insurers.

As a result of the flooding, Fitch Ratings has increased its estimate for the German non-life sector’s gross combined ratio to 94% from 91% and our estimate for the net combined ratio to 95% from 93%.

However, despite the lower underwriting profitability Fitch still expects the sector to generate underwriting profits, which it says means the impact on insurers’ credit profiles will be minimal.

Also read:

Paris & France floods & storms could cost insurers over EUR2bn: MAIF.

Storm Elvira to cost German insurers $510m+, says GDV

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