Standard & Poor’s says it is too early to assess the impact of the current floods on the Czech insurance market, but that the lessons of the last great floods five years ago might not have been learnt.
Reports suggest that the present floods will exceed the severity of those in 1997, when the total damage amounted to Czech koruna (Ckr) 63 billion ($1.98 billion). “Although the insured loss reached only Ckr9.7 billion, a number of Czech insurers found themselves with insufficient reinsurance protection, which contributed to the downfall of at least one insurer and meant that others required additional capital support,” Standard & Poor’s credit analyst Ashley Gill said.
“Although insurers are believed to have increased their catastrophe reinsurance protection since 1997, there is still the possibility that cover might not be sufficient, given the severity of the current event, and that increasing reinsurance costs might have led to insurers maintaining higher retentions,” Gill added. Over the longer term, reinsurance costs look set to rise further for Czech insurers as reinsurers try to recoup the cost of the second one-in-100-year flood event in five years.
Fortunately, there are some factors that favor Czech insurers.
Although a significant increase in the demand for property insurance could have reasonably been expected after 1997, this did not happen. The likely reason is that the Czech government stepped in to provide financial support to those affected, thereby reducing demand for property insurance. Similar government support can be expected on this occasion.
In addition, although the take-up of commercial and private property insurance is quite high, the proportion of policies providing flood cover is low.
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