VKB says Germany June flood loss well-below King Max cat bond attachment
German insurer Versicherungskammer Bayern Versicherungsanstalt des oeffentlichen Rechts’ (VKB) has provided an update on its losses from the severe flooding that struck southern parts of Germany in June 2024, highlighting they remain well-below the attachment point of its King Max Re DAC 2023 catastrophe bond, Artemis has learned.
VKB successfully sponsored its first catastrophe bond in December 2023, securing an upsized €175 million of multi-peril indemnity and per-occurrence catastrophe reinsurance protection from the capital markets.
The catastrophe reinsurance provided by the King Max Re cat bond protects VKB group against losses from earthquakes, hailstorms, floods and windstorms in Germany, over a three year term beginning January 1st 2024.
Which means the cat bond was exposed to the major flood event that struck southern Germany at the start of the summer, beginning May 31st and running into the first week of June.
The King Max Re DAC cat bond notes have an initial attachment point at €900 million of losses to VKB’s business and their reinsurance coverage for the insurer would exhaust at €1.1 billion of losses.
A number of industry loss estimates were issued for that flood event, from the German insurance association saying it expected the flooding to drive around a €2 billion insurance market loss, to Moody’s (RMS) that put an upper-limit to its insurance market loss estimate at US $3.2 billion, as well as Verisk’s Extreme Event Solutions had estimated that the flooding in southern Germany would drive insurance industry losses in a range from US $2.6 billion to $3.9 billion, and finally PERILS AG who initially estimated insured losses from the flooding at €1.6 billion.
Sources have now told us that insurer VKB has updated the catastrophe bond market to say that at this stage it estimates between €350 million and €500 million of losses from this June flood event, so this is well-below the €900 million King Max Re cat bond trigger.
As a result, VKB is said to have updated the market to explain that, based on the current estimate its catastrophe bond would not be affected by the flood loss, despite the water levels rising to around the 1-in-100 year flood heights.
One reason for this is that the floods were particularly impactful in parts of Bavaria, which is a region VKB said it has a lower market penetration in, compared to other areas of Germany.
Given where the latest loss estimate for this flooding event sits for VKB, it seems relatively safe to assume the loss could not creep high enough to trouble holders of the cat bond notes.
It’s perhaps also worth noting here that, Hannover Re this morning disclosed just a €160 million gross impact from these floods, which when compared to VKB’s expectations of loss reflects just how much the economics of risk sharing have changed in the industry over recent years.
You can read all about this King Max Re DAC 2023 catastrophe bond transaction to our Deal Directory, where you can analyse details of almost every cat bond ever issued.
