Stefan Schneider, Assistant Vice President
2008 Reinsurance Market Position
All major catastrophe model vendors are active in the Nordic region and have models for windstorm. In 2008 RMS and EQECAT released new model versions. A significant change is that forestry exposure now is included in the models, which in the light of the Erwin loss in 2005 is considered to contribute to the PML for forestry exposed portfolios. Furthermore, EQECAT released a model for windstorm exposure in Finland which is the first available model for this country. Due to the coming Solvency II requirements the Nordic cedents tend to buy coverage up to a 200 years return period.
Windstorm Hannu (known as Per in Sweden) hit Scandinavia in January 2007. The storm was not as severe as Erwin but caused losses to the forests of approximately 12 million cubic meters of lumber. This is lower than the approximately 70 million cubic meters of lumber impacted by Erwin. The estimated total insured loss was around SEK1 billion (USD 160 million).
In general, Nordic catastrophe reinsurance programs were renewed with unchanged retentions, while some cedents increased their limits.
Winter storms and floods are the main catastrophe exposures in the Nordic region. Norway and Denmark are considered to have the highest exposures for wind, while Finland is deemed to have the lowest. After developing over the Atlantic, storms typically hit Norway’s west coast or sweep through Denmark and the southern part of Sweden, as was the case with windstorm Erwin (Gudrun) in January 2005.
Flood exposure in the region comes mostly from melting snow. Norway was severely affected by flooding in 1995. Earthquake is not considered a significant peril in the Nordic region, though Iceland is exposed to earthquakes, volcanic eruptions and avalanches. Landslides occur, but have caused only minor economic losses.
Traditionally, personal and commercial property policies are written on a comprehensive basis. Policies generally cover natural exposures, but details tend to vary by country.
In Sweden, flooding following a dam burst has the potential to be a severe catastrophic event. This exposure is now generally excluded from primary commercial policies and has a low loss limit for private lines.
Norway amended its insurance laws in 1980 to make direct damage and fire following “natural perils” integral to the basic fire policy. With the compulsory addition of natural perils to the standard fire coverage, a flat rate is charged against insured values, which are reinsured through a pool solution (Norsk Naturskadepool). The pool’s losses are shared by the member companies, based on market share. The indemnity of the pool is limited to NOK12.5 billion (USD 2.3 billion) per occurrence, and the deductible for each loss is NOK8,000 (USD 1,490) per household. Only losses to buildings and contents for certain perils such as storm, flood, earthquake, and landslide are covered by the pool. Business interruption, losses to movable objects and freeze losses are not covered, though coverage can be obtained separately outside the pool system. The pool buys a common reinsurance protection up to the full limit, with a retention of NOK600 million (USD112 million).
Flood damage in Denmark is covered under a special program. On all Danish property policies, a contribution of DKK20 (USD4) is automatically paid to a flood pool. The flood pool can declare “flood coverage available,” thereby coverage can be obtained from the pool with a deductible of DKK10,000 (USD2,000).
In Finland, flooding caused by overflow from rivers and lakes is not covered. After the loss experience from winter storm Erwin, most companies also exclude sea surge for commercial policies. Private buildings are still covered.
The renewal prices for catastrophe programs decreased by 0 percent to 15 percent in the Nordic Region mostly due to a softening reinsurance market. The graph below demonstrates the development of catastrophe prices in the Nordic region between 2001 and 2008. The series is presented as an index, with 2001 being the base value of 100.