December 22nd, 2008

Poland: Catastrophe Reinsurance Market 2008

Posted at 12:50 AM ET

Hamish Dowlen, Senior Vice President
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2008 Reinsurance Market Position

The pricing of Polish catastrophe business is still quite competitive, with substantial capacity available from all reinsurance markets (worldwide). Since there have been no significant catastrophe losses since 2001, a relatively benign loss experience in recent years has put pressure on pricing. Carriers are generally purchasing protection up to high return periods. Retention levels have nonetheless increased for some larger buyers. As a result, Windstorm Kyrill losses remained within quite a few insurers’ retentions.

Catastrophe Exposure

Poland is primarily at risk of atmospheric perils, such as flood, windstorm and hail. Although Poland is generally characterized by a temperate climate, severe weather can be caused by the collision of diverse air masses, such as moist maritime air coming from Western Europe, cold arctic air moving down from the North Atlantic Ocean, warm subtropical air originating in the South Atlantic Ocean and dry continental air from Asia.

Flood is the most significant peril, as several larger events affected the country in recent years. The 1997 Odra river flood was the most substantial event for both the country and the insurance industry. It caused an economic loss of USD3.7 billion, an insured loss of more than USD225 million and 54 fatalities. Melting snow and ice jams in the spring and heavy rains in the summer define the two periods of greatest flood risk.

In March 2007, the World Bank approved a USD189 million loan for the Odra River Basin Flood Protection Project. This project aims to protect the population in the Odra basin from the loss of life and property damage caused by severe flooding. Protection can be achieved by reducing the extreme flood peaks through storage in a dry polder on the Odra River.

Guy Carpenter provides a probabilistic river flood model for Poland that covers the Odra and Vistula Rivers. The representation uses a 25m x 25m Digital Terrain Model and river network maps combined with 80 years of historical gauge station information to develop a stochastic event set. It also models defense failure and subsequent water propagation in Poland.

The windstorm hazard is becoming increasingly topical for Poland. In January 2007, Windstorm Kyrill swept across Europe and caused considerable damage in Poland. The Polish market loss for Kyrill was estimated to be USD70 million, mostly from property and motor losses. Another intense winter storm hit Europe in early March 2008. While insured losses are believed to have been low, Emma uprooted trees, destroyed more than 260 roofs and left thousands without electricity. Three people died and eight were injured.

Apart from winter storms, tornados can be regularly observed in Poland. In July 2007, a tornado struck three villages in central Poland, damaging 97 houses and 87 sheds. Earthquakes typically occur only in the Carpathian region, in the south of the country, and the hazard is therefore not seen as a problem.

Insurance Availability

The Polish insurance market is the largest in Central and Eastern Europe, with a non-life premium volume of over USD7 billion, penetration of 1.7 percent of GDP) and density of USD184 per capita.

In local currency terms, total gross premiums for the Polish insurance sector rose by 9 percent, to PLN41 billion (USD 18.5), in 2007. The bulk of the increase came from non-life premiums, which rose by 18 percent, to PLN19.3 billion (USD 8.7billion). Like most other countries in the CEE region, the most important line for non-life premiums is motor insurance, which accounts for 61 percent of the category. In contrast, the next highest line, property/fire, constitutes only 18 percent of total premiums, while personal liability accounts for 11 percent. Accident/health remains very small, at only 6 percent.

Natural perils, including flood, tend to be included automatically with the extended coverage perils in a property insurance policy, alongside the basic fire, lightning, explosion and aircraft (FLEXA) perils. However, flood cover can be limited in areas where the risk is known to be high. Some insurance companies are introducing sub-limits or increasing deductibles. Nevertheless, not all policies for small- and medium-sized companies include flood protection as standard. For other classes, such as agricultural buildings in Poland, building insurance (including flood cover) is obligatory. However, this is not enforced, and many risks remain uninsured.

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Additional contributor:

  • Elzbieta Mazaraki-Gawronska, Vice President
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