Significant share of European flood claims to be covered by reinsurance: S&P

With Europe still affected by flooding in recent days, S&P Global Ratings has commented on the Central and Eastern European flood event from the second week of September, saying it expects a significant share of insurance claims will be covered by reinsurance capital.

S&P Global Ratings has said that it anticipates the insurance market loss from these floods to be around €2.2 billion across Czechia, Poland, Austria, and Romania, which is near the lower end of the €2 billion to €3 billion range indicated by reinsurance broker Gallagher Re.

Reinsurance broker Guy Carpenter has also estimated the costs of these floods, putting the industry loss in a range from €1.6 billion to €2.1 billion, across Poland, Czech Republic, Slovakia, Austria, Hungary, Romania and Germany.

As flood waters move downstream in major European rivers and levels peak, there is the potential for additional losses to occur.

S&P notes that the property and casualty performance of major European insurers will be affected by the flood event, but “sound reinsurance protection” will assist them in paying claims.

As a result, reinsurance is expected to be a stabilising factor for the affected insurers and S&P notes that it expects “a significant share of the claims from the most affected countries are covered by reinsurers.”

Adding, “We understand that globally diversified reinsurers are on the panels of these companies. Furthermore, given the diversified business of these reinsurers, we would not expect they will suffer material consequences in terms of performance given that the size of event is (globally) rather modest.”

However, they also note that the flood losses could have ramifications for reinsurance renewals.

Saying, “We expect that the rated insurers affected by the floods will continue to limit volatility in terms of capital and earnings that might result from any further catastrophes over the remainder of 2024. Considering the extent of the flooding event, we will closely monitor the availability and the cost of reinsurance protection for the groups affected, especially considering still favorable market conditions for reinsurers.”

The insurance-linked securities (ILS) market is not likely to be overly affected by these floods, but there will be a chance of some claims leakage via quota share structures and sidecars, we suspect.

In the main, collateralized reinsurance layers and any catastrophe bonds likely attach higher-up than where the impacts of these floods in Europe will reach to in reinsurance arrangements, but participants in sidecars and quota shares may suffer some attritional impact to the performance of these investments.

Flood events have continued to affect areas of Europe and the rest of the world in the past week, including the UK and parts of France and Italy.

Flood risk insurance is more prevalent in Europe and flood coverage often packaged in property policies, both personal and commercial, so the ongoing impacts of heavy rainfall in the region could have further ramifications for some reinsurance arrangements.