November 4, 2013 12:09 am

German insurers count catastrophe costs

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A fallen tree lays atop a destroyed car on Camden Square on October 28 2013 in London, England©Getty

Fallen trees were responsible for most of the damage

Dozens of German insurers are facing large underwriting losses and hits to their balance sheets after an unusually costly year for natural disasters, a leading credit rating agency has warned.

A week after a storm swept across northern Europe and struck cities including Hamburg, AM Best estimated on Monday that the bill to German insurers from a series of catastrophes could reach almost €5bn.

“It’s a big number,” said Stefan Holzberger, managing director at AM Best, which specialises in the insurance sector. “It’s just been one thing after another.”

The storm that hit the country last week comes after flooding in June, estimated to have cost the German industry €1.8bn, and hailstorms in July and August, estimated to have cost it €2.7bn.

Willis Re, the broker, has forecast that German insurers will pay out between €250m and €400m in claims from the storm last week, which killed seven people, destroyed cars and blew away roofs across the north of the country.

The handful of diversified, multinational insurers based in Germany, such as Allianz and Munich Re, should be well insulated from the effects of the disasters, AM Best said.

However, the dozens of small German insurers – often mutuals – that do not write business outside the country would be worse hit.

“Accumulated losses may cause [these] companies to exceed their catastrophe budgets significantly”, AM Best said in a report.

“Depending on their level of reinsurance protection, these companies may post large underwriting losses for the year and could experience erosion in equity capital.”

Mr Holzberger added that the industry was likely to remain well capitalised even after the heavy losses and he did not expect the insurers to need to raise fresh equity to satisfy regulators.

Across Europe, the insurance industry is facing a bill of between €800m and €1.3bn from the storm last week, which also hit Britain, France, Belgium, the Netherlands and Denmark.

These would be the heaviest losses arising from a European windstorm since 2010.

However, the costs should be easily manageable for the global insurance industry, which paid an estimated $17bn of claims for natural catastrophes in the first six months of the year.

That figure is below average; the year so far has been relatively quiet for natural disasters. Those that have struck have been unusually concentrated on Germany.

In most markets insurers would struggle to pass on the costs of the storm last week to consumers and businesses through higher premiums, analysts said. They added insurance rates were more likely to rise in Germany.

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