2008 Reinsurance Market Position
The storm peril is covered universally for full value in household policies, as well as in most commercial and industrial policies. Catastrophe capacity is readily available at attractive prices for the Hungarian market, and another year of low losses in 2007 resulted in some further price reductions for local programs (though they were small).
Nevertheless, several programs are no longer purchased locally. Instead, they fall under international group protections. This trend could continue in the future, in the light of acquisitions made at the beginning of 2008 by insurance groups outside Hungary.
Reinsurer panels remained fairly stable. There is wide variation in the levels to which companies are protecting themselves from earthquake, ranging from 100-year to 250-year return periods. In general, the market remains quite uninformed about the true potential of flood loss.
Flood is Hungary’s major natural peril. Though the country is also exposed to windstorm, hail, and earthquake, the flood peril generally has the highest frequency. Public perception of natural hazards is relatively high, since the country has suffered both earthquakes and floods in recent years. Significant flooding events occurred in 1999, 2000, and 2001.
Hungary’s floods are caused by either heavy rainfall or snowmelt. The two most exposed areas are the northern reaches of the Tisza and the Danube, south of Budapest City. This was evident in August 2002 and April 2006, when flood waters draining from Central Europe raised the Danube to dangerously high levels. The water level in Budapest during the 2006 flood event was higher than ever measured before, though not high enough to cause the city to flood. None of these events produced a loss of any significance for the insurance industry.
Some observers believe that Hungary’s earthquake exposure is underestimated and therefore underrated. The last significant earthquake in Hungary was in 1985 and cost approximately USD1.3 million. An event exceeding a magnitude of 5.0 occurs nearly every year in the country, although they result in only limited damage to buildings.
Insurance penetration is high, with a premium spend per capita of approximately USD330. Total non-life premium in 2006 was USD2.5 billion. Insurers are generally undecided as to whether earthquake or flood poses the greatest risk.
Earthquake coverage is universal, though it is sub-limited in some cases. The majority of companies define earthquake in policies as “the fifth degree on the MSK-64 scale” to avoid having to pay losses for inadequately protected buildings that suffer losses from smaller events.
Flood coverage is not universal, but penetration is quite high - estimated to be approximately 80 percent of household policies and 50 percent of commercial and industrial policies. Flood cover is often sub-limited, although some insurers will provide full-value cover. There is a state fund to address homes in highly exposed flood plains that have difficulty obtaining private insurance cover.