Eastern European Floods Cause Widespread Damage

The floods that devastated Eastern Europe throughout August may have been caused by global warming, or by one of the 100-200 year storms probability theory predicts, or maybe just bad luck. They were in any case, the most ruinous in over 100 years.

Swiss Re said there had been 100 fatalities directly connected with the flooding, and that economic losses would be between 15 and 20 billion*; however, it also indicated that “the insured loss will be substantially lower than the economic loss since flood insurance penetration is generally low and/or sublimited in the affected countries.” It hasn’t released an estimate of its own losses.

Upper and Lower Austria, the Czech Republic and Eastern Germany were hit the hardest, as floodwaters along the Danube, the Elbe and the Vlatava (Moldau) devastated the historic cities in their path. In Dresden the Elbe reached 31 feet above flood stage, the highest level since records began in the 16th century. Prague was heavily damaged as floodwaters caused the collapse of many ancient buildings. Budapest narrowly escaped similar damage as workers toiled around the clock for a week building barricades.

The full extent of the losses hasn’t been calculated yet, but preliminary estimates indicate that Germany was the hardest hit. In addition to the physical damage to homes and businesses, commerce was interrupted all along Eastern Europe’s river systems. Road and rail traffic was paralyzed. The German Farmers Union estimated that agricultural losses alone could reach $1.5 billion. Swiss Re quoted official German sources as giving the following damage estimates, as of the third week of August: “Sachsen EUR 15 bn (commerce: EUR 4-5 bn, private: EUR 3-4 bn, infrastructure: EUR 5-7 bn), Sachsen Anhalt EUR 5-8 bn, and Bavaria EUR 0.5-1.5.” Losses in the Czech Republic were expected to exceed $2 billion, and nearly $3 billion in Austria.

German companies Allianz and Munich Re will probably suffer the greatest losses. “Due to our very strong market position in Eastern Germany, Allianz bears the bulk of the insured losses in the regions affected,” stated Reiner Hagemann, Chairman of the Board of Management of Allianz Versicherungs-AG, the German p/c arm of the Allianz Group.

The company said that, “Based on preliminary estimates, the net total claims (after reinsurance) for the Allianz Group will be around 550 million euros, which is less than two percent of the anticipated volume of claims for fiscal year 2002.” Allianz gross loss figures for Germany are around 580 million, 120 million in Austria and 115 million in the Czech Republic.

Munich Re in its report of 1st half results noted that until the floods “claims costs from large and very large losses in reinsurance were well below the long-term average.” The “bad weather events” in Eastern Europe in July and August, however coincided with flooding in China and Southeast Asia. It estimated that, “based on current knowledge” its claims expenses “could amount to a medium-sized triple-digit million figure, in all probability not exceeding 500m.” It added that “Despite these serious events, the claims burdens for the insurance industry will remain within manageable limits, as insurance density for the flood risk as a whole is relatively low.”

In a BBC interview a spokesman for Munich Re explained that German insurers do not automatically include flood insurance in homeowners’ or most commercial policies. Although it’s widely available as additional coverage, costing as little as $50 a year, most people don’t buy it, because they think the risk of flood damage is highly unlikely. He estimated that only about 10 percent of the country’s insurance policies have it.

Allianz temporarily stopped writing flood coverage in the stricken regions, because, as spokesman Klaus Schmidtke put it, “When the water is already at the door, insurance cover is no longer possible.” But company officials have since said they were working hard to process claims, and would actively participate in rebuilding damaged facilities. They also indicated that “Allianz will continue to offer storm and flood cover within household and home contents insurance,” and had already recommenced issuing new policies in certain areas.

Non-German companies were hit too. Bermuda-based PartnerRe Ltd. indicated claims could reach $100 million. Zurich Financial services, already hit by a $2 billion net loss in the 1st half of the year, estimated its net exposure between $175 and $200 million. France’s SCOR estimated the floods would cost it between 40 and 50 million after tax. The AXA Group stated that it had no exposure in the Czech Republic or Austria, and only limited exposure in Germany, mainly for losses to automobiles.

With less than 20 percent of the total losses covered by insurance, the task of cleaning up the debris, rebuilding homes, stores and factories and reestablishing damaged infrastructure falls on the respective governments. Germany, already suffering from the economic downturn, will be hit the hardest, but the comparatively smaller economies in Austria and the Czech Republic may suffer proportionally even more.

*The Euro and the Dollar are essentially at parity.

Topics Profit Loss Claims Flood Europe Allianz Germany