The floods in Germany are likely to be even costlier than those in 2002, Fitch Ratings says. If flooding progresses as it has in the past, economic damage in Germany is likely to be around EUR12bn, with gross insured losses of between EUR2.5bn and EUR3bn. However, the insurance sector is likely to remain in underwriting profitability, meaning the impact on insurers’ credit profiles should be minimal.
Most claims are likely to be on homeowners’, contents and motor insurance policies, as well as business interruption insurance. Insurers with high market shares in the homeowners’ and contents sectors are likely to be the hardest hit. These include most public sector insurers in western Germany, including Versicherungskammer Bayern and the Sparkassen Versicherungen, and Allianz in the east of the country. Insured losses are likely to be significantly below the total economic damage because many residents in areas prone to flooding will not have been able to obtain natural hazard cover in their home or contents insurance, or only at a prohibitively high price.
On average about 32% of all home insurance policies in Germany include natural hazard cover. However, there are large regional differences. Among the areas currently affected by the floods, Bavaria has the lowest level of natural hazard cover (21% of policies). In Saxony the level is 42%. Within these regions, coverage may be even lower in locations that are particularly susceptible to flooding.
Annual claims across the sector are around EUR50bn a year, so flood claims are likely to be 5% to 6% of the annual total. This would, on average, add between 3.5 and 5 percentage points to an insurer’s gross combined ratio. Reinsurance will cushion this impact, with typical excess-of-loss reinsurance cover reducing the impact on the net combined ratio to between 2 and 3 percentage points. We estimated the net combined ratio in 2012 to have been 96%-97%.
Overall, the underwriting result for the sector is likely to remain stable in 2013, factoring in increased premiums.