Market fears €10bn loss from European floods

Market concerns over the quantum of losses from July’s European floods are continuing to grow, with fears the event may now cost in excess of €10bn ($11.8bn), according to Ascot CEO Andrew Brooks.

In an exclusive interview with The Insurer TV, Brooks warned the event was set to become a far higher loss pick than people originally envisaged.

“A lot of people are talking about over €10bn – some of the regional retro will definitely come into play,” he said.

Reinsurers are expected to absorb a sizeable portion of July’s flood losses, with both Munich Re and Swiss Re disclosing expected impacts in the mid-triple-digit million euros and Hannover Re estimating its losses at between €200mn and €250mn.

The flooding has meant European catastrophe insured losses for the year-to-date total more than $16bn, according to Aon’s head of catastrophe insight Steve Bowen, which marks the highest tally for the region since 2013, which saw $19bn of catastrophe losses at 2021 values. 

“This year is already running well ahead of the recent decadal average of $10.5bn,” Bowen told The Insurer.

July’s German floods have been the largest driver of losses, with the most recent estimate from German insurance association GDV suggesting carriers now expect €7bn of losses. Several within the market believe the loss could be higher.

“Recent estimates for the European flood losses are reasonably broad with the market seeing around €6bn of losses but some estimating as high as €9bn,” explained Paul Brand, deputy CEO of Convex.

“In any event, it will represent two to three years’ worth of premium for one series of events and it will be fairly extraordinary if that doesn’t move pricing.

“However, one of the ways some people try to ignore bad news is to try to outgrow it. My hunch is there is enough bad news coming out for people to recognise it as a clear signal that prices need to go up, but you could see people saying this is a good time to take market share.”

Several other commentators have also suggested renewal pricing will respond to recent European losses, including TransRe president and CEO Ken Brandt.

In an interview with The Insurer TV, Brandt highlighted that European property catastrophe programs had seen rates on line down between 40 percent and 50 percent over the past decade.

“This is largely driven by a lack of large loss activity in that timeframe so maybe that’s understandable,” he said.

“But that’s all in the rear-view mirror now with the onset of Covid losses and with the tragic European floods. So I would expect very meaningful rate rises for property catastrophe at 1.1.”

Jefferies analyst Philip Kett said the higher proportion of net losses expected to fall on reinsurers from the European floods will likely create additional rate rises in European property excess of loss contracts.

“It’s clear that these above-average losses are putting pressure on the adequacy of corporate natural catastrophe budgets. Consequently, we expect this to compound the ongoing hard market for property contracts,” he said.

Loss potential

Reinsurers had been left largely disappointed at 1 January 2020, when European cedants successfully argued their accounts had run largely loss-free and should not be punished for loss experience in other regions of the world.

However, as Aon’s Bowen notes, the high dollar impacts resulting from significant flood and severe convective storm events highlight the loss potential that these perils present on the continent. 

“Climate influence will be particularly prevalent on the flood peril as a warming and moistening atmosphere will result in heavier precipitation occurrences and subsequently lead to enhanced risk in the years to come,” he said.

The highest loss years in Europe have typically been defined by active windstorm seasons. 

“There have only been two years since 1980 that have resulted in more than $20bn in insured losses from natural perils in Europe (at 2021 values) – 1990, with losses of $27bn and 1999, with losses of $21bn. Both of those years were marked by major windstorm events.”

Ascot’s Brooks: Pricing will inevitably increase at 1.1

Ascot CEO Andrew Brooks has called for a “more thoughtful process” from parts of the reinsurance market at upcoming renewals to better differentiate between cedants and the risk management measures they have in place. 

Speaking to The Insurer TV, Brooks said it was “inevitable” pricing would increase at 1 January given recent catastrophe experience. 

Rather than just look at modelled data and “treat everyone indiscriminately because the model says X”, Brooks said it was critical for reinsurers to understand how clients are managing their portfolios.

He praised Ascot’s reinsurance panel, much of which has been in place since 2001. 

“They spend a lot of time understanding our business and the drivers behind it and the risk management behind it.  

“We would expect pricing to go up but we hope that rather than a blanket ‘it’s going up by a factor of X’, we hope there is a differentiation between good, medium and poor performers.”