Losses mount in worst European winter storm season since 1990

The winter storm season in Europe looks set to add additional pressure to any insurers and reinsurers that are already feeling the pinch due to declining property catastrophe renewal rates, as losses from European windstorm and flooding start to mount.

Both sides of the Atlantic are experiencing unusually severe winter storm season, with the U.S. seeing extreme cold, heavy snowfalls and ice storms, after which the low pressure systems have been racing across the Atlantic and intensifying on the way to Europe.

The result is that Europe is currently experiencing the most severe winter storm season since 1990, according to risk modelling firm RMS, with a number of European windstorms causing insured losses and the rainfall from these storms, added to a very wet winter, now causing significant flooding, particularly across the UK and Ireland.

Robert Muir-Wood, chief research officer at RMS, commented; “This winter storm season has seen the most severe sequence of storms since 1990.”

In December Europe saw two severe windstorms, Xaver and Dirk, which Impact Forecasting, the catastrophe modelling unit at reinsurance broker Aon Benfield, said would result in combined economic losses of at least $2.25 billion.

Impact Forecasting put the insured loss from the two storms at approximately $1.6 billion, with $1.1 billion caused by windstorm Xaver and $500m caused by windstorm Dirk.

As a reminder, this is on top of the insured losses from European windstorm Christian from October, which PERILS AG estimated at around $1.35 billion.

Adam Podlaha, Head of Impact Forecasting, said; “The clustered pattern of windstorms seen across western and northern Europe in December has emphasized the importance of being able to capture this phenomenon in catastrophe models. Impact Forecasting’s new European windstorm model replicates such clustering patterns by using a realistic sequence of storms originating directly from highly advanced global climate models.”

Europe has been hit by multiple European windstorms in recent weeks, not just Dirk and Xaver, showing that there has been no let up in the weather this winter. The latest, named windstorm Christina, has affected the UK and Ireland as well as northern France and some areas of Scandinavia in recent days as well.

The result of the repeated windstorm impacts on Europe is that the ground is saturated and flooding has become severe, particularly in Ireland and the UK. Record high tides and tidal surges coinciding with Spring tides have exacerbated the situation and caused coastal damage and flooding.

RMS said; “Since the peak of the 2013 / 2014 winter storm season started in December, Northern Europe has been bombarded by 14 low-pressure systems. These weather systems have swept in off the North Atlantic and brought strong wind gusts in excess of 90 mph in remote locations and gusts over 70 mph over large parts of the UK. Extreme rainfall levels have been observed across the country, particularly in Scotland where one location observed 73.6 mm of rain on Christmas Eve. The significant precipitation contributed to December seeing 154 per cent of the UK historical average rainfall for that month and in Scotland it was the wettest December since records began in 1910.”

The position of the jet stream, very different to last year when the UK had cold polar air, is the main factor bringing the repeated storms to Europe’s shores, as is the prevalence of winter storms in the U.S., remnants of which are fed into the jet stream and propelled east.

RMS explained; “The succession of large and intense low pressure weather systems has been a function of a very strong and stable jet stream, fed by the strong contrast between the warm tropical Atlantic air masses and intensely cold Arctic air over North America. Although this sequence cannot be directly linked with climate change – the coastal flooding will be more common in the future, while winter rainfall totals are expected to rise.”

Insured losses in Ireland are expected to be close to the highs seen from flooding in 2009, when insurers shouldered approximately $340m of losses. An official estimate is expected from Insurance Ireland in three to four weeks.

Mohammad Khan, an insurance partner at PwC, commented on the impact of the UK flooding on the insurance sector, saying that the events could result in hundreds of millions of pounds of losses.

“The impact of the extreme rain and floods of recent months has become progressively worse. For the UK insurance industry, although this may not be the final estimate of the full costs of all the weather we have had, indications are that this could leave the industry up to £400m out of pocket. This estimate could develop further, particularly given the further flood warnings in place in the UK this week. Although the impact on individuals and businesses over Christmas has been severe, the 1,800 properties impacted so far does not compare to the 2007 storms where approximately 55,000 homes and business’ were adversely impacted.”

“When including uninsured losses, the full economic cost of the floods will be slightly above the insured cost of £400m. However, unlike in many parts of Europe, weather, flood and storm events are covered by personal and commercial property insurance as a default option rather than being a potential add-on. This has meant that many individuals over the holiday season have been able to gain assistance from their insurers in ensuring the necessary repairs to their property.”

“Despite the weather in the last three months of the year, 2013 has still been one of the most benign weather years in terms of insured losses. For many insurers who announce their year-end results next week, we expect results for those writing personal and commercial property lines to have positive results. Those insurers that have done most to understand the potential for flood, storm and weather events will have benefitted from this investment given the events of the last two to three months.”

Back across the Atlantic, U.S. winter storms in December are expected to result in insured losses in the hundreds of millions of dollars. With the weather having worsened considerably into January as well, due to record low temperatures and snowfall caused by the polar vortex phenomenon, U.S. winter storm losses are likely to be high and we will update you when details of the impact to insurers and reinsurers are clearer.

The European windstorm and winter storm season has some months left to run, typically until April storms can threaten. Also the flooding event is still developing in the UK and Ireland, with more rainfall expected in the coming days, rivers already swollen and flood defences likely to be breached again.

Added to the mounting losses in the United States and Canada from winter storms, ice storms and snowfall disruption, the worst European winter storm season in years will bring unwelcome losses to insurers. No single event currently looks set to trouble the sector, but on an aggregate basis, including European storms since October, the flooding and the U.S. winter storms, the impact is set to be passed on, at least to some degree, to the global reinsurers who protect the primaries.

How big that impact will be is impossible to tell, but some impact is sure to hit the reinsurance sector given the amount of events and mounting aggregate losses of this winter storm period. Some impact is possible to collateralized reinsurers and ILS managers who participate in major European reinsurance programs. We will keep you updated as loss estimates emerge and the impact becomes clearer.