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Catastrophic Floods: Moody’s Forecasts Tough Year For German Insurers

The recent catastrophic flooding in Germany as a “consequence of climate change,” has been described by analysts at Moody’s as potentially challenging for the country’s risk underwriting firms and warned that German insurers could find it difficult to protect homeowners against climate risk in future without significant price increases.

It would be recalled that the floods, which impacted the southern part of the German federal states of North Rhine-Westphalia and Rhineland-Palatinate, caused serious damages to residential and commercial assets as well as general infrastructure, with insured losses from the flooding estimated by experts at €4-5 billion by the GDV.

Risk experts even predict that the economic losses associated with the natural disaster are expected to be even higher as many home insurance policies did not cover rainfall-induced flooding.

According to Moody’s analysts, the floods will affect various insurance business lines, with homeowners’ and household insurance hit hardest due to extensive damage to houses and their contents.

The firm also anticipates that commercial lines will face property damage and business interruption claims, including some due to failing supply chains.

Already, the German P&C industry is struggling to make a profit from homeowners’ insurance, as Moody’s believes that premium increases will likely be required to continue offering such protection in future.

Moody’s analysts forecast: “The industry has not made significant underwriting gains from homeowners’ insurance in recent years, with the combined ratio oscillating around the 100% break- even point. This year’s floods will push underwriting results in this segment deeply into negative territory.

“As a consequence, the industry will come under pressure to restore profitability by pushing up prices and adjusting underwriting policies, e.g. by requiring homeowners to take precautions against flooding, or by introducing higher retention quotas”, it added.

The research firm’s analysts foresee a material negative impact on the German P&C sector’s overall combined ratio for 2021, especially in view of the large natural catastrophe claims that have already been reported so far this year.

Risk experts have projected that as claims frequencies begin to trend back towards pre-pandemic levels as coronavirus-related restrictions ease, the gross combined ratio for the year could trend towards 96-99% percent

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