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Effective reinsurance utilisation to reduce Provinzial’s Bernd losses: Fitch

22nd September 2021 - Author: Luke Gallin

Primary German insurer Provinzial is expecting gross claims of at least €1 billion from the flooding in the country in July, although the company’s net hit should come down considerably thanks to its effective use of reinsurance, reports Fitch.

germany-floods-2021In early August, Provinzial estimated that losses from Storm Bernd would reach at least €761 million, after the insurer had received more than 33,000 claims related to the series of events.

Throughout the month, claims continued to come in and as of August 20th, Provinzial reported that preliminary gross claims would be at least €1 billion from the July floods, and could even rise to €1.5 billion, making it the largest historical claims event for the company.

Clearly, Provinzial was strongly impacted by the German floods, but analysis by Fitch suggests that this will primarily be an earnings issue rather than a capital one for the insurer, owing to its use of reinsurance protection.

“We believe that Provinzial buys appropriate reinsurance cover to mitigate its exposure to natural catastrophe activity and protect its balance sheet,” says Fitch. “This view is supported by the fact that Provinzial reported a very strong Fitch-calculated net combined ratio of 94.1% – despite being affected by windstorms in 2018.”

It appears as though the insurer’s utilisation of reinsurance to cover against windstorms is considerable, but when it comes to flooding, Fitch notes that reinsurance is less extensive.

But despite this, Fitch still expects reinsurance to cover a sizeable amount of the loss from the July floods, projecting net claims of between 40% – 50% of gross claims, amounting to between €450 million and €700 million of retained losses for the company.

According to Fitch, a large slice of the net losses will be covered by €242 million claims equalisation reserve at Provinzial Rheinland Versicherung AG, the operating subsidiary suffering the majority of the losses.

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