Concerns are mounting that escalating European flood losses will hit the top layers of catastrophe covers for smaller regional and national players and may go out of the top of towers in some cases, The Insurer can reveal.
- Some regional insurers understood to be going out the top of towers
- Top layers getting hit often priced with ~1% RoL or less
- Big four European reinsurers have major participation on regionals
- But markets including Fidelis, Lancashire and TM HCC thought to write top layers
- Delays in summer reporting causing loss creep
The European big four reinsurers – Swiss Re, Scor, Munich Re and Hannover Re – tend to be the biggest reinsurance counterparties for some of the insurers likely to be worst affected, especially in Germany, which was hardest hit by the wind and flood losses from storm Bernd.
Other reinsurers such as Axa XL are also believed to have significant books of business in Germany, while a small number of other writers including Fidelis, Tokio Marine HCC and Lancashire are understood to specialise in participating on the top layers of the cat covers.
Sources have said that top layer specialists will sometimes write 100 percent lines as private deals with line sizes that can be $50mn or $100mn at rates on line typically below 1 percent.
It is understood a number of the smaller and regional German carriers which have been hit by losses from the summer flooding in Europe have historically purchased high levels of reinsurance in order to protect their relatively small balance sheets.
German carrier Provinzial is among those with a heavy concentration in the region of the country worst affected by the July floods and a month ago had reported that at that stage its preliminary gross claims would be at least €1.02bn ($1.2bn), up from €761.3mn at the start of August.
Other national carriers that have reported significant claims include Gothaer with estimated gross losses of €400mn to €450mn, W&W with an initial gross loss pick of €400mn and SV Sparkassenversicherung.
Sources said that German regional insurers often sell separate wind and flood products, although some bundle them into a single policy.
The exposures are typically combined into single cat excess of loss programs, with insurers also often buying stop-loss covers. Quota shares are also prevalent among those carriers with smaller balance sheets, and are heavily supported by the large Continental reinsurers.
Reinsurance structures bought by regional players are understood to primarily renew at 1 January.
Reinsurers on affected programs are expected to be disproportionately impacted by the escalating losses as a result of the low rates on line higher up towers.
Reinsurance losses are also expected to come from large European insurers with exposure to the floods, but will be contained in the low to mid layers of cat programs.
Continental reinsurers are expected to bear the brunt of the losses as they tend to have by far the biggest share of the smaller German regional players – and retain the majority of the exposures – meaning that losses are less likely to be handed to the retro market.
The largest reinsurers have already acknowledged their expectations of absorbing a sizeable portion of July’s flood losses, with both Munich Re and Swiss Re last month disclosing expected impacts in the mid-triple-digit million euros and Hannover Re estimating its losses at between €200mn and €250mn.
However, given the timing of the flooding – which in addition to Germany impacted parts of Belgium, France and Luxembourg – sources have suggested that discussions between cedants and reinsurers were delayed as a result of summer vacations, with the full magnitude of the loss now becoming clearer.
Germany – in particular the Rhineland and North Rhine-Westphalia regions – was by far the worst affected by the fatal floods that occurred between 13-18 July from the low pressure system dubbed Bernd.
Several of Europe’s largest insurers have also disclosed their expected losses for the event, which will fall in the third-quarter reporting period.
Axa said it expects to retain losses of around €400mn from the floods, with Generali estimating an impact of €100mn. Ageas has estimated the total cost of its claims related to July floods in Belgium at €400mn.
In early August, this publication revealed that Germany’s largest insurer Allianz – which according to S&P wrote €4.54bn in gross premiums in 2020 – had notified its reinsurance panel it provisionally expected losses of €900mn from the flooding, with the carrier set to pass on €600mn of this to reinsurers.
Reinsurers pushing hard for rate at 1.1 renewals
With insured losses now estimated to stand at north of €11.5bn and climbing, reinsurance underwriters are pushing hard for higher rates ahead of 1 January renewals.
In recent interviews with this publication as part of #ReinsuranceMonth, several reinsurance executives have emphasised the need for significant rate increases at 1 January after what was generally seen as a disappointing round of European renewals at the start of 2021.
With the European losses likely to represent several years’ worth of premium in the region for treaty underwriters, after rates on line dipped by 40-50 percent over the past decade, multiple other reinsurer sources have said renewal pricing will respond in a meaningful way to the events.
But brokers have said that while increases of some magnitude are now expected, past performance of European cedants and the dynamics of the market mean they will be limited to mid-single digits.