Europe: Weathering the storm

According to Munich Re data, the most costly natural disaster for 2013 in terms of overall economic losses was the flooding in southern and eastern Germany (and neighbouring states) at the beginning of June. Overall losses totalled €11.7bn (£9.6bn), while insured losses came to €2.3bn.

Flooding also affected Austria and the Czech Republic in 2013. Meanwhile, the St Jude storm in the UK also caused damage in France, Belgium, the Netherlands, Denmark and northern Germany.

But one problem in 2013 was that not all these catastrophes were covered by insurance. Manfred Garreis, Crawford & Company Germany managing director, says the floods had a high level of non-coverage due to the Zürs zoning system, which calculates flood risk from river floods in Germany.

"However," he says. "There are talks underway to address this issue. According to the German Insurance Association, approximately €7m has been paid for the flood, storm and hail events in 2013."

The most expensive events for the insurance industry in 2013 were the German hailstorms, affecting northern and southwestern regions of the country between 27 and 28 July, Munich Re reported.

It said the loss from hailstorms in July and August totalled around €3.9bn, of which €3.1bn was insured. The hailstorms in late July accounted for €3.6bn of the overall loss, and €2.8bn of the insured loss.

European domination
Swiss Re chief economist Kurt Karl acknowledges that while it has been a long time since Europe dominated the US in aggregate total losses, it is not unusual for the top annual losses to occur in Europe. Indeed, in 2007 and 2002 flooding in central Europe and the UK were recorded as the top losses, and windstorm Horatio in northwestern Europe was the top loss in 2000.

However, commentators seem to believe European insurers have taken these costly catastrophes in their stride. Peter Eliot, Berenberg Bank insurance equity research analyst, says insurers came through the last year relatively unscathed.

He says: "It was a bad year for primary insurers in terms of weather-related events. The fact they managed to turn in underwriting profits despite those events speaks well for the development of pricing over the past few years, which has tended to be fairly positive."

Karl agrees, saying prices were not "terribly impacted" by the catastrophe events in Europe. "The January renewals globally on cat events were quite a challenge with the brokerage around 10% price drops so there was quite a lot of market pressure there," he says.

Property lines increase
Other sectors saw increases. Swiss Re calculated a 35 to 40% increase in the combined operating ratio for property lines in Germany and a 5% increase for motor.

Asked if the large increase in property lines was rare, Karl says: "The way to look at it is, it is a significant impact but it is not unusual."

"The insurance industry came through this well. There were no company failures for insurers or reinsurers - and it is indicative of how tough it is in the markets that the price impact was minimal," he adds.

Flood protection requirements
Speaking specifically about Germany, Garreis says there is still work to be done on flood protection and promoting the benefits of insurance to German homeowners.

"Only one third of German homeowners have opted for ‘natural hazards' in their insurance policy as many do not know that cover is available," he admits.

"Weather patterns are becoming increasingly less predictable, with weather events occurring when they are least expected. Catastrophe claims are happening all too frequently, and with Germany experiencing a mild winter this year, forecasters are predicting heavy storms this spring."

Looking forward to 2014, AIR Worldwide senior vice president and managing director Milan Simic says it is impossible to predict what will happen.

"If there was one major lesson from 2013 it would be that it was a wide variety of regions that the losses came from. Insurers and reinsurers need to be prepared for losses in every region and from every peril," Simic adds.

Karl agrees, adding that globally there is a flooding issue. "We have been surprised in the last five years at the amount of flooding. Canada got hit last year, there have been floods in Thailand, and there was the Japanese earthquake and flood event," he says. All this points to a global requirement for better flood protection in insurance policies.

An improved 2014
However, Karl adds that insurers will not be expecting this year to generate the same level of losses as 2013.

"What happened last year was that Europe got a slight increase on an average loss. We don't say we are expecting losses to be the same as last year for every year in the future, but as long as you take at least a 10-year average as your average loss and do your financials on that [you can make a good estimate]. But these events are not predictable."

Eliot does not believe insurers will change their natural catastrophe strategy for 2014.

"I don't think they will be massively changing their reinsurance programme. Most of the weather of this last year would have been seen as a one-off, and I don't think they would be expecting that trend to repeat itself this year," he says.

"It is always the case that it is easier to put up premium rates if you have had a big storm coming through because customers realise what they are paying for and why they need insurance. I would expect a continuation of positive rate increases in Germany. How much of that you can tie down to the storms is a bit tricky."

With a polar vortex currently gripping the US and Canada and more rain predicted for the UK, European insurers will have to be prepared for whatever nature throws at them.