The Versicherungskammer Bayern Versicherungsanstalt des öffentlichen Rechts (VKB) has published an update on its losses from the severe floods that hit parts of southern Germany in June 2024. As Artemis has learned, the losses are still well below the tie-up point of its catastrophe bond King Max Re DAC 2023.
The catastrophe reinsurance through the King Max Re catastrophe bond protects the VKB Group from January 1, 2024, over a period of three years against damage caused by earthquakes, hailstorms, floods and storms in Germany.
This means that the catastrophe bond was exposed to the severe flooding that hit southern Germany at the beginning of the summer, from May 31 to the first week of June.
The King Max Re DAC catastrophe bonds have an initial trigger point at a business loss of EUR 900 million for VKB, and their reinsurance protection for the insurer would be exhausted at a loss of EUR 1.1 billion.
A number of damage estimates for the industry were published in response to this flood. The German Insurance Association expects damage to the insurance market to amount to around 2 billion euros. Moody’s (RMS) increased its damage estimate for the insurance market to 3.2 billion US dollars. Extreme Event Solutions from Verisk estimated that the floods in southern Germany would mean damage to the insurance industry in the range of 2.6 to 3.9 billion US dollars. Finally, PERILS AG initially estimated the insured damage from the flood at 1.6 billion euros.
Sources have now told us that insurer VKB has updated the catastrophe bond market and said that at this stage it estimates the damage from the June floods to be between €350 million and €500 million, well below King Max Re’s €900 million catastrophe bond threshold.
VKB is said to have then informed the market and explained that, according to current estimates, its catastrophe bond was not affected by the flood damage, despite the water level rising to approximately the level of the century’s flood.
One reason for this is that the floods particularly devastated parts of Bavaria, a region in which VKB has lower market penetration compared to other parts of Germany.
Given the latest loss estimate for VKB in connection with this flood event, it is relatively safe to assume that the damage may not be high enough to cause problems for the catastrophe bond holders.
It is perhaps also worth mentioning in this context that Hannover Re only announced gross losses of EUR 160 million from the floods this morning. Compared to VKB’s loss expectations, this figure shows how much the economics of risk sharing in the industry have changed in recent years.
You can read all about this catastrophe bond transaction King Max Re DAC 2023 in our deal directory. There you can also analyze the details of almost all catastrophe bonds ever issued.
