OREANDA-NEWS. Insurance claims linked to the recent flooding in Germany are likely to reach about EUR1bn, Fitch Ratings says. Claims on this scale would weaken underwriting profitability for the sector, but would be unlikely to threaten credit profiles.

Most claims are likely to be on homeowners', contents and motor insurance policies as well as, to a lesser extent, business interruption insurance. Insurers with high market shares in the homeowners' and motor sectors are likely to see the biggest impact. These include public-sector insurers, especially Versicherungskammer Bayern and SV SparkassenVersicherung, which are active in the hardest-hit regions.

Economic losses are likely to be significantly higher than EUR1bn because only around a third of home insurance policies in Germany include natural hazard cover. Residents in areas prone to flooding often do not have natural hazard cover because it is unavailable or very costly.

However, much of the recent flooding has been caused by extreme local rainfall in areas that have not been considered at high risk of flooding, meaning that insurance would have been cheaper and easier to obtain. The proportion of homes covered could therefore be higher than in the last major German floods in 2013.

Insured losses of EUR1bn would be equivalent to the entire expected natural catastrophe losses that are factored into our 2016 forecasts, although excess-of-loss reinsurance cover will cushion the impact.

We have increased our estimate for the German non-life sector's gross combined ratio to 94% from 91% and our estimate for the net combined ratio to 95% from 93%. Both of these revisions include an increase of one percentage point to reflect weaker-than-expected underwriting profitability in 2015, which formed the basis for the 2016 outlook.

Expected combined ratios of less than 100% mean the sector will continue to generate underwriting profits and the impact on insurers' credit profiles should therefore be minimal.