Central European Insurers’ Financial Strength to Remain Solid Despite Severe Floods
The heavy rains and severe floods of Storm Boris, which inundated Central and Eastern Europe during the second week in September, will be the most severe flood event in about a decade, carrying an insurance price tag of an estimated €2.2 billion ($2.5 billion), according to S&P Global Ratings in a report.
While insurers’ property/casualty performance will be affected, the companies rated by S&P “have sound reinsurance protection, posted strong half year results in 2024, have diversified earnings streams, and sound capital adequacy, all of which should serve to protect credit quality,” said the ratings agency in a report titled “Central European Insurers’ Financial Strength Is A Barrage Against Flood Damage.”
S&P noted that its estimates of insured losses of €2.2 billion (US$2.5 billion) across Czechia [the Czech Republic], Poland, Austria, and Romania are at the lower end of the €2 billion-€3 billion (US$2.2 billion-US$3.3 billion) range indicated by reinsurance broker Gallagher Re. (Related story: Flooding in Central Europe Could Cause Billions in Economic Losses, Analysts Say)
On the other hand, Guy Carpenter estimated a market loss between €1.6 billion and €2.1 billion (US$1.8 billion-US$2.3 billion) in its report on the floods published on Sept. 24.
The flooding has claimed at least 24 lives across the most affected countries, Gallagher Re said in its commentary on the floods.
For now, S&P said, the main insured losses from the event are coming from the Czech Republic, Poland, and Austria. Although there was also significant flooding in Romania, S&P does not expect material insured losses in that country due to low insurance penetration.
“Unsurprisingly, given the size of the affected areas, the economic costs of the flood will be high,” said S&P Global Ratings analyst Jure Kimovec, in a statement accompanying the report. “Because flood risk is commonly insured in Czechia, Poland, and Austria, we believe that property and casualty insurers operating in these countries are likely to report sizable natural catastrophe losses from the event.”
Negative but Manageable
S&P said that the group of insurers it rates in the region are likely to see negative but manageable effects from the floods. These insurers are: Vienna Insurance Group AG, UNIQA Insurance Group AG; Powszechny Zaklad Ubezpieczen S.A. (PZU); Towarzystwo Ubezpieczen i Reasekuracji WARTA S.A. (part of Talanx Primary Insurance Group); HDI Versicherung AG (part of Talanx); and Allianz Elementar Versicherungs AG (part of Allianz SE).
“We do not expect claims resulting from the floods to result in any liquidity constraints for the rated groups,” the ratings agency noted.
“While we believe rated insurers could see some limited impact from the floods on their P&C underwriting results in 2024, we expect that reinsurance protection, strong overall earnings in the first six months of 2024, diversified earnings streams from life and health insurance, and sound capital buffers both under Solvency II and the S&P Global Ratings’ capital model are strongly supportive factors and a financial buffer against the natural catastrophe claims.”
At the same time, S&P continued, all these insurance groups have very strongly profitable non-life business, with non-life combined ratios in the low to mid 90% range. (A combined ratio below 100 indicates an underwriting profit).
S&P also expects insurers’ capital positions to remain resilient and their Solvency II ratios to remain solid.
The ratings agency suggested that there could be an effect on the availability and the cost of reinsurance protection for the affected insurance groups, considering the extent of the flooding event, “especially considering still-favorable market conditions for reinsurers.”
Benefits of Flood Protection
Despite the severity of the damages, S&P suggested that the Czech Republic, Poland, and Austria are better prepared for such a natural catastrophe than they were during past events in 2013 or 2010, “given improvements to flood protection and prevention measures over the last decade.”
“Improved warnings, along with recent increased investment in flood defenses have been critical in mitigating losses,” Gallagher Re agreed in its report.
Guy Carpenter said the region’s flood impact demonstrates its progress in preparedness as rainfall exceeded a 100-year return period, but resulted in 25-65 year losses for insurers in Czech Republic, Poland and Austria.
“Unlike the devastating floods of 1997, 2001, 2002 and 2010, the impact of the 2024 flood was significantly mitigated by modern infrastructure, dams and flood barriers,” Guy Carpenter said.
“This reduction in losses is largely due to improved flood risk management and heightened public awareness across the region. Investments in flood defenses and timely preventive measures such as pre-emptive predicative reservoir management and reinforced levees, alongside more accurate early warning systems, played a key role in minimizing the financial impact and safeguarding major urban centers,” Carpenter added.
Howden Re also pointed to the significant investment made by a number of Central European countries on flood defense measures since 2002, which has had “a major impact in ameliorating the consequences of this extreme event.”
Insured Losses by Country
S&P went on to discuss the insured losses from the recent floods on individual countries in the region.
- The Czech Republic. The insured losses in the Czech Republic will reach about 17 billion Czech koruna (approximately $757.6 billion), said S&P, quoting the first estimates of the Czech Insurance Association (CAP). Losses are expected to be equally split between households and commercial entities, S&P said, noting that at this level of expected insured loss, the 2024 floods would likely exceed the insured losses of the 2013 floods in the Czech Republic and become the nation’s second most expensive natural catastrophe, behind the floods of 2002.
- Poland. Regions in south-west Poland (Lower Silesia and Opole County), which neighbor the Czech Republic, were also heavily hit by the floods. As a result, S&P expects that Polish insurers will have to deal with material insured losses, which could be in a similar range to those in the Czech Republic.
- Austria. In Austria, insured losses are also expected to be historically significant, with insured losses reaching an estimated €600 million to €700 million (US$668.4 million-US$780 million), said S&P, quoting the Austrian insurance association (VVO). This level of claims would make the floods Austria’s largest ever insured natural catastrophe event.
- Romania. Although there was also significant flooding in Romania, S&P does not expect material insured losses due to the relatively low penetration of flood insurance, which means that most of the nation’s economic losses are not insured.
Photograph: A view of a damaged house after recent floods near Pisecna, Czech Republic, on Thursday, Sept. 19, 2024. (AP Photo/Petr David Josek)
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