Europe floods create doubt for reinsurers; analysts eye share prices of Munich/Hannover/SCOR
Early loss estimates show that Europe's severe flooding will cost re/insurers several billion euros, with the highest portion of anticipated insured losses expected in Germany - home to some of the largest re/insurers such as Munich Re, Hannover Re and Allianz.
Torrential rainfall caused by a slow-moving area of low pressure – named “Bernd” by Free University of Berlin – resulted in catastrophic flooding, said to be the "worst regional flooding in decades", across parts of Western and Central Europe from July 12-18. Thousands of properties were inundated and hundreds of people were killed, with dozens still officially listed as missing by local officials.
Beyond Germany and Belgium, widespread flood- and storm-related damage was also noted in Switzerland, France, Luxembourg, UK, Austria, the Netherlands, Italy, Poland, Hungary, Slovakia, and the Czech Republic.
According to Aon's Impact Forecasting cat report, the combined cost of this flooding across Europe is anticipated to reach well into the billions of euros.
In Germany, flood claims will be driven by property damage under buildings insurance, followed by vehicle write-offs under motor insurance. Fitch Ratings estimates these losses will add up to 5 percentage points to German non-life insurers’ net combined ratios. However, it noted that the vast majority of the flood claims will be covered by reinsurance, limiting the impact on insurers’ combined ratios.
The insured losses will likely be Germany’s highest from a natural catastrophe event since widespread flooding in 2002, which led to claims of €4.5 billion, gross of reinsurance, Fitch said. Risk exposures and reinsurance cover for the flood losses will vary among insurers, and insurers with higher retained exposures could face more significant losses, particularly if their exposures are concentrated in the worst-affected regions.
According to S&P Ratings, German insurers will face about €1.7 billion in insured losses from storms in June and July. "Insured natural catastrophe losses for the whole of 2021 could reach 2013's high of more than €7 billion and if they exceed €15 billion, the gross combined ratio for the sector could rise to 109 percent," said S&P Global Ratings credit analyst Johannes Bender.
Meanwhile, UBS has estimated the flood loss scenario to cost up to $6 billion (split $2 billion primary insurers and $4 billion reinsurers), creating uncertainty for reinsurers.
UBS noted that although there's a "huge uncertainty" in assessing industry losses at this early stage, the event is likely to erode 69-134 percent of Q3 budgets of European re/insurers based on its assumed market shares, resulting in Swiss Re and SCOR already consuming c.70 percent of FY21 budgets YTD, and Munich/ Hannover Re c.35% of budgets consumed YTD.
It said, assuming only 15 percent of 2H catastrophe budgets are held for European Storm damage, and the remainder of year is 'normal', then the earnings implication for this event is -7-10 percent for Munich Re and Hannover Re, -17 percent for Swiss Re and -25 percent for Scor.
UBS noted that while share price action implies greatest concern on Munich Re/ Hannover Re, they are "least at risk of earnings downgrades" in its view. Scor's shares have performed beyond our expectations relative to the sector based on its scenario.
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