Economic damage from floods in Germany could reach 12 billion euros, Fitch says

Recent severe flooding in Germany is likely to be even costlier than floods there in 2002, Fitch Ratings said Tuesday.

If the flooding progresses as it has in the past, the country is likely to see economic damage around 12 billion euros, with insured losses of between 2.5 billion and 3 billion euros. the ratings firm said.

“However, the insurance sector is likely to remain in underwriting profitability, meaning the impact on insurers’ credit profiles should be minimal,” Fitch’s statement said.

Most of the claims from the floods are likely to be from homeowner, contents and motor insurance policies, according to Fitch. Business interruption insurance claims will also be made, it noted.

“Insurers with high market shares in the homeowners’ and contents sectors are likely to be the hardest hit,” the company said. “These include most public sector insurers in western Germany, including Versicherungskammer Bayern and the Sparkassen Versicherungen, and Allianz in the east of the country.”

“Insured losses are likely to be significantly below the total economic damage because many residents in areas prone to flooding will not have been able to obtain natural hazard cover in their home or contents insurance, or only at a prohibitively high price,” Fitch added.

About a third (32% on average) of all home insurance policies in Germany include natural hazard coverage, although it differs regionally, according to Fitch. Bavaria has the lowest level of natural hazard coverage, with only 21% of policies, while Saxony has 42%, it said.

Flood claims are likely to be about 5% to 6% of the annual total claims for the industry, Fitch noted.

“This would, on average, add between 3.5 and 5 percentage points to an insurer’s gross combined ratio,” its statement noted.

“Reinsurance will cushion this impact, with typical excess-of-loss reinsurance cover reducing the impact on the net combined ratio to between 2 and 3 percentage points. We estimated the net combined ratio in 2012 to have been 96%-97%.”