Fitch says insured losses from European storms could hit €5bn

The forecast for the insured losses caused by storms Dudley, Eunice and Franklin, which battered much of northern Europe in recent days, has risen to €5bn, according to Fitch Ratings. The credit ratings agency said the losses will “dent” non-life insurers’ profits, particularly in Germany, the UK and the Netherlands, with the gross insured loss set to be as high as €5bn. The agency said, however, that reinsurance cover held by the primary carriers should see this bill reduced to less than €2bn. “In most cases, we do not expect the losses to burn through insurers’ earnings, materially erode capital or affect ratings,” said Fitch. The agency added that it will update the market if new information emerges that could affect ratings, particularly given the severe flood warnings that remain in parts of the UK. In Germany, Fitch expects insured losses to be as much as €2bn. “Insurance claims net of reinsurance are harder to estimate, because reinsurance recoveries will depend on whether the storms count as a single combined event or as separate events under the terms of each reinsurance contract. Nevertheless, we expect net claims to be no more than €750m,” added Fitch. This would add about one percentage point to the non-life sector’s net combined ratios (net claims and expenses to net premiums), which would be “modest” compared with the impact from the German floods of last summer, said the agency. Fitch said the German non-life sector has good underlying profitability, mitigating the impact of natural catastrophe losses, which are inherently volatile. The sector’s combined ratio is typically less than 100% (indicating an underwriting profit), even in years with high natural catastrophe losses. Fitch pointed out that in the UK, storm Eunice brought record-breaking wind speeds, causing widespread disruption. However, property damage from wind tends to be less costly than that from floods, and it therefore does not expect abnormally high claims from this storm. “Aggregated losses from all three storms could be similar to those from comparable series of storms in previous years, which have averaged about £400m,” added Fitch. The agency warned, however, that the ultimate losses in the UK could be “significantly” affected by further flooding following storm Franklin as flood damage, although more localised than wind damage, tends to lead to costlier insurance claims. “While we do not expect the storms to affect UK non-life insurers’ ratings, the losses will weaken profitability, which is already under pressure from claims inflation and subdued premium rates,” said Fitch. Fitch agreed with Dutch insurance association VVV, which earlier this week said the insured losses in the Netherlands could exceed €500m. “The losses may increase further due to persistent high winds but we do not expect the storms to add more than three percentage points to the Dutch non-life sector’s combined ratio. This still represents a significant dent to profitability but most major insurers should be able to absorb the impact, given their reasonable underlying profitability and diverse business models,” concluded Fitch.

Fitch says insured losses from European storms could hit €5bn

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