Under water: Europe's flooding won't swamp insurers with claims, but it won't help either in a year marked by financial strain. (Briefing).

Like the waters of the Danube and the Elbe, estimates of insured losses from flooding in Europe have been rising steadily since the series of August deluges that sent rivers over their banks across Central Europe. But the final total, while substantial, looks unlikely to swamp insurers as badly as the flood waters inundated cities in Germany, the Czech Republic and Austria.

The insured losses appear likely to exceed 2 billion euro (approximately $2 billion), with some estimates reaching as high as $4 billion, based on figures released by insurers and reinsurers across the region. Simon Foessmeier, an analyst at Germany's Bank Julius Baer, said he expected total economic losses of 20 billion euro or more, with an insured loss of about 2.4 billion euro. Allianz, he noted, would bear close to 25% of the exposure. But Bermuda-based PartnerRe Ltd., which put its own exposure in a range of $110 million to $120 million, said the insured losses could be $3.5 billion to $4 billion.

Germany's Allianz AG Holding appeared to be paying dearly for a byproduct of German reunification--its assumption of old policies written by the state-run insurer in the former East Germany, many of which included flood coverage. Allianz Versicherungs-AG, the Germany property unit of Allianz, took the brunt of a groupwide net loss estimated at 550 million euro, primarily on household and home contents insurance, the company said.

While Allianz's exposure took some equity analysts by surprise, some other insurers said their shares of the losses fell within their normal expectations for catastrophes. Still, the losses were ill timed, as many companies posted first-half earnings that showed the strain of turbulent capital markets.

A report by Swiss Reinsurance Co. posted on its Web site said that total economic losses from the flooding are now likely to exceed 15 billion euro, with insurers taking only a fraction of the loss. Germany's economic loss was likely to exceed 10 billion euro, the report said, noting a catalog of official loss estimates from German states affected by the flooding: 15 billion euro in Sachsen; 5 billion to 8 billion euro in SachsenAnhalt, and 500 million to 1.5 billion euro in Bavaria.

In Austria, economic losses are estimated at more than 3 billion euro, with an insured loss of about 200 million euro, while the Czech Republic expects economic losses of more than 2 billion euro, Swiss Re said. The Czech News Agency reported that through Aug. 26, the 17 members of the Czech Insurance Association--representing virtually the entire market--had received nearly 132,000 claims worth 25.6 billion korunas (approximately $837 million).

With the exception of eastern Germany, the penetration of flood insurance in the markets affected by the floods is relatively low, which should hold down the ultimate exposure for insurers compared with the economic loss. Swiss Re noted that the estimate of insured losses in Austria was less than 10% of the economic loss, while past floods in the Czech Republic left insurers with about 20% of economic losses.

The Swiss Re report divided the floods into two distinct weather events--a pair of storm systems, both of which originated over Scotland but took different paths. The first started moving over Europe on July 30 and dissipated over the Black Sea on Aug. 10, while the second spanned a period from Aug. 6 to Aug. 15, when it broke up over Ukraine.

The first system dumped heavy rain on Germany and upper Austria before moving on to Romania, the Czech Republic and the eastern coast of the Black Sea. Austria took the heaviest economic blow, as northern tributaries to the Danube River flooded, but the Black Sea region suffered the most fatalities at 59.

The second system caused intense rainfall in parts of Italy, Germany, the Czech Republic, Spain, and both upper and lower Austria. Russia and Slovakia also were affected.

The double blow caused widespread river flooding, with the Vitava in the Czech Republic breaking an 1890 record near Prague and the Elbe exceeding an 1845 flood level in Dresden, Germany. The Danube broke a record in Passau, Germany.

Flooding had subsided by September with no reports of further serious losses, despite threats from saturated dikes and high groundwater, which could "float" buildings and cause major structural damage.

Allianz said its gross claims would exceed 800 million euro--including 580 million euro in Germany. Allianz's gross losses in Austria were estimated at 120 million euro, while the Czech Republic accounted for another 115 million euro of expected claims.

Munich Reinsurance Co., meanwhile, said its flood-related losses could reach 500 million euro, and Swiss Re gave a preliminary estimate of 250 million Swiss francs (approximately $167 million).

France's Axa said its net pretax exposure would be about 200 million euro, with about one-third of the burden falling on its German unit, Axa Konzern, and the remainder expected to hit Axa Corporate Solutions, which writes large commercial risks. Company spokesman Christophe Dufraux stressed that the loss figure was before accounting for any release from Axa's equalization reserves, which some European insurers maintain to smooth the effect major losses might otherwise have on earnings.

Major Losses in Europe

Top five European insured losses, 1970-2001.

($ Millions)

                                                            Insured
Event                Year           Countries Hardest Hit    Loss *

Winter Storm Daria   Jan. 25, 1990  France, U.K.            $6,221
Winter Storm Lothar  Dec. 25, 1999  France                   6,164
Storm and Floods     Oct. 15, 1987  France, U.K.             4,674
Winter Storm Vivian  Feb. 25, 1990  Western/Central Europe   4,323
Winter Storm Martin  Dec. 27, 1999  France, Spain            2,551

* U.S. dollars indexed to 2001.

Source: Swiss Re
Flood Losses Swell

Major Insurer affected by the August floods in Europe have reported the
following losses, net of reinsurance:


Insurers:
* Allianz AG Holding, Germany                   550 million euro
* Axa, France                                   200 million euro
* Assicurazioni Generali SpA,                    90 million euro
  Italy
* Ace Ltd., Bermuda                                  $90 million
 (after tax; some losses incurred
  as reinsurer)
* Ceska pojistovna, Czech Republic               13 million euro

Reinsurers:
* Munich Re                                     500 million euro
* Swiss Re                                    170.5 million euro
* PartnerRe                         $110 million to $120 million
* Converium                                          $50 million
* Hannover Re                        50 million euro (after tax)