Factoring in typical levels of hailstorm activity this summer and expected winter storm-related claims, Fitch Ratings says 2021 could be one of the worst years for German so far this century in terms of natural catastrophe claims.
Altenahr, Germany, Monday, July 19, 2021 (Boris Roessler/dpa via AP)
Furthermore, Fitch Ratings estimates that the severe floods in Germany could add up to 5pp to German non-life insurers’ net combined ratios.
Germany appears to be facing its most costly natural catastrophe event since the widespread flooding in 2002, which led to claims of €4.5 billion, gross of reinsurance.
In most cases, Fitch does not expect the losses to burn through insurers’ earnings and materially affect capital thanks to extensive reinsurance cover for nat cats and strong profitability from other business lines.
Consequently, the rating agency does anticipate rating actions provided the information it receives from individual insurers in the coming days is in line with its view of sector net losses.
It’s worth noting however that Aon considers a large portion of damage from the recent catastrophic flooding in Europe to be uninsured, even as re/insurers brace for a multi-billion-dollar loss overall.
Flood claims are expected to be driven by property damage under buildings insurance, followed by vehicle write-offs under motor insurance.
Fitch says annual natural catastrophe claims in Germany are typically around €3 billion but are already set to significantly exceed this amount in 2021.
The vast majority of the flood claims should be covered by reinsurance, Fitch adds, limiting the impact on insurers’ combined ratios.
Moreover, the German non-life sector has good underlying profitability, mitigating the impact of natural catastrophe losses, which are inherently volatile.
The sector’s combined ratio is typically below 100%, even in years with high natural catastrophe losses.
The most notable exception in recent times was in 2002, when Germany also experienced severe flooding and the sector’s underlying profitability was weaker than it is now.
