The economic losses and costs associated with the ongoing severe flooding events in Europe are expected to be substantial, especially affecting the Emilia-Romagna region of Italy, rising into the billions of euros, but insured losses will be lower because of “significant Protection” broker Aon said gaps in flood risk remained.
Reporting on this week’s severe weather and notable catastrophic events, insurance and reinsurance broker Aon’s impact forecasting unit warned that flood-related damage assessments were ongoing as “multiple waterways remain above flood levels”.
Aon’s Impact Forecasting explains the meteorological context of the flooding event, writing: “On May 13-14, heavy rainfall and localized thunderstorms began to affect the region as the first low pressure system Benedikt (named by FU Berlin) flooded the Favorable conditions were brought. Storm development and heavy precipitation. Another round of downpours was accompanied by another low Chappu on May 15-17. The storm gained an international designation, Minerva.
“The low pressure persisted in the region for several days, bringing heavy rains, especially in the Emilia-Romagna region of north-central Italy. The 48-hour rainfall totals exceeded 200 mm (7.9 in) at several locations (see table below ).
“This rainy season follows heavy rainfall that hit the same region in early May. These two noteworthy events resulted in extreme rainfall totals. Since early May, Forli – Several stations in the provinces of Cesena, Ravenna and Bologna have received more than 500 mm (19.7 inches) of rain.
Severe flooding this week affected several other countries in southern and central Europe, Impact Forecasting said.
At least 14 people have been reported dead and considerable damage to property, vehicles, infrastructure and agriculture has been reported in Italy’s Emilia-Romagna region.
The rainfall and flooding event came just two weeks after the first round of floodwaters hit the area, meaning river levels were already high.
Regional governments report that the total economic damage is expected to be in the billions of euros.
In Italy’s Emilia-Romagna and Marche regions, more than 10,000 people were reportedly forced to evacuate their homes due to flooding, while some 400 roads were closed and at least 50,000 were reportedly without power.
In addition, Aon further explained that tens of thousands of hectares of farmland suffered significant agricultural losses, saying that local agricultural associations reported that more than 5,000 farms were flooded.
Flooding also occurred in Croatia, Bosnia and Herzegovina, Austria and the Czech Republic, with some damage reported in each country.
Aon’s impact forecast said, “More rain is expected in the coming days so the situation remains dire and more evacuations were announced on 19 May. However, given the scale of the disaster, local authorities are already anticipating economic damage The impact on the insurance industry is expected to be a relatively small proportion of the total cost, as significant protection gaps in flood insurance remain.”
It is worth emphasizing that our analysis shows that the cat bond market has been exposed to the Italian floods, and that the recently issued and still valid Lion III Re DAC cat bond sponsored by Generali does have some exposure.
The previous Lion catastrophe bond sponsored by Generali explicitly listed flood risk as a covered risk, but the recent Lion III Re has dropped this explicit coverage.
However, flooding still appears to be included in the European storm risk, as flooding may be a risk associated with storms named by reporting agencies, which we understand. The storm reporting agency for the catastrophe bond is the Free University of Berlin, one of the institutions named for the storm that triggered the flooding event, as Aon reports above.
While it seems unlikely at this stage that catastrophe bond insurance is at risk from this flood event, it serves as a reminder that such risks do exist in the ILS market, although anywhere there may be collateral to participate in regional investments, the problem is likely to be greater Insurance company reinsurance tower.