Storm Xynthia has impact on French insurers; less for reinsurers

Storm Xynthia — which struck western Europe on February 28 causing serious damage, mainly in France — will present a significant, though manageable, cost for the French insurance industry, Moody's Investors Service said in a special comment. The storm will prove considerably less costly for the reinsurance industry, although it may have the effect of increasing the cost of future events borne by reinsurers.
"Xynthia appears to have been less violent than previous storms that have hit France since 1999, suggesting that wind-induced claims will likely be manageable for the insurance industry, in the range of EUR 500 mln to 1 bln in France, as estimated by the some risk modelling firms," explained Benjamin Serra, author of the report.
"However, the combination of winds and high tides has also been responsible for devastating floods on the French Atlantic coast, and the costs of these floods are potentially high, due to serious damage to property but also sizeable business interruption claims," the analyst added.
The French association of insurance companies has indicated that the total insured cost of Xynthia in France may be higher than EUR 1.2 bln.
"Nonetheless, as the floods were officially declared as ‘natural disasters’ by the French government on March 1, primary insurers will benefit from the protective reinsurance scheme provided by the state-owned Caisse Centrale de Reassurance (CCR). This mechanism — coupled with coverage against climatic events purchased with traditional reinsurers — will limit the net cost for the insurance industry," Serra noted.
Overall, Moody's expects that the net cost of Xynthia for the French primary insurance industry will be slightly lower than or comparable with that for storm Klaus experienced last year, which represented around 3 points of loss ratio and around 3% of the industry's shareholders funds.
"In contrast, for the reinsurance industry, Xynthia should be much less costly based on current estimations for two key reasons. Firstly, 50% of the claims related to floods will be picked up by CCR. Secondly, the combination of wind-induced claims and the floods-induced claims not borne by CCR may not significantly exceed primary insurers',” Serra said. Reinsurers will, however, now be more exposed to future climatic events in France, especially to future storms, as, annual aggregate retention levels for climatic risks of some ceding companies may nearly be reached. Consequently, the costs of such additional events may now be more largely borne by the traditional reinsurance industry.