302-05482 en

Knowledge series Highs and lows
Weather risks in central Europe
Germany, Austria, Switzerland, Czech Republic,

Slovak Republic, Slovenia, northern Italy
Heavy rainfall in August
2002 transformed the Elbe
(normally just a narrow
ribbon from the perspective
shown in the upper image)
into a lake (lower image) –
with catastrophic conse-
quences. The flood claimed
more than 100 lives and
caused economic losses
of some €12bn in Germany
alone.
Editorial
Dear Reader,
The international headlines of the past few years It is time for a re-analysis of Europe’s meteorological
have been dominated by extreme hurricane events risk situation. This publication gives you the most
along the US coastline. Katrina was certainly the recent assessments of all the relevant weather risks
most costly loss on record, with dramatic conse- in central Europe and an outlook on the changes
quences in human terms, but Europe has also been we can expect in the coming years. The spectrum
hit recently by an unusually large number of weather- ranges from storms and floods to the effects of
related catastrophes and disturbing new develop- extreme temperatures. One chapter, devoted
ments. To name but a few examples: the Elbe flood to the insurance-related aspects of weather risks,
of 2002, Germany’s most costly natural catastrophe; summarises current regulations in the different
the hot summer of 2003, a 450-year event, in which markets, providing a handy reference guide as to
more than 70,000 died in Europe due to the heat; how neighbouring markets are dealing with the
the August 2005 floods in the Alps, Switzerland’s risk situation.
most expensive natural catastrophe on record;
Hurricane Vince, which developed off Madeira The central message is that, as a result of climate
before heading towards Europe; Winter Storm Kyrill, change, past loss experience is no longer a suitable
Germany’s most expensive and Europe’s second yardstick for predicting future losses. Instead,
most expensive winter storm, involving major the consequences of global warming, which vary
losses across much of central Europe. In addition, from region to region, must be anticipated now,
eastern Europe repeatedly suffered prolonged, and reflected in pricing and risk management. We
widespread floods. Analyses undertaken using our trust that you will find the information contained
NatCatSERVICE database clearly show that the in this publication to be both of practical use and
number of weather-related natural catastrophes in informative.
Europe has more than doubled since 1980. There
is increasing evidence that this trend is already
driven by climate change.
Dr. Torsten Jeworrek

Member of the Board of Management
Corporate Underwriting/Global Clients
Munich Re Weather risks in central Europe

Contents
Editorial 1

Executive summary 4
Climate change in central Europe 6
The risks 10
Windstorm risks 12
Flood risks 20
Extreme temperatures, snow accumulation
and risks in mountainous regions 26
Underwriting aspects 32
Specific characteristics of the target markets 34

Agricultural insurance 42
Motor accidental damage (AD) insurance 44
Marine insurance 45
Hedging weather risks via the capital markets 46
Weather insurance 48
Summary 50
Geo services – Client services 51
Appendix 54

Risks, p. 10
Severe storms will grow more frequent and
more intense due to global warming. The risk
situation must be re-evaluated to ensure the
growing losses can be insured in the future.
Underwriting aspects, p. 32
Increasing concentration of values in exposed
regions is a major loss driver. The insurance
industry faces the task of devising products
to address new challenges.

Executive summary
Scientific aspects
The 2007 IPCC (Intergovernmental Panel on Climate Change) report confirms

what Munich Re has long maintained: climate change is already taking place.
It is more than 90% probable that this is largely due to climate-changing trace
gases released into the atmosphere by human activities. The mean global
temperature has increased by 0.74°C in the past 100 years and, in Europe, the
mean temperature has risen by as much as 0.95°C. The IPCC also confirms our
analyses indicating that climate change is already causing a greater number
and higher intensity of weather extremes. Individual events such as eastern
Germany’s major floods in 2002, the record summer temperatures in 2003
across much of Europe, flooding in the Alpine region in 2005, and Winter
Storm Kyrill in January 2007 may not in themselves be directly ascribable to
climate change. However, the growing frequencies and intensities of events
tend to point to such an influence.
In the light of these developments, it is necessary to carry out a new analysis

of the risk situation in Europe arising out of weather-related hazards, such as
exposure to winter storms, which will increase. A single event can lead to
insured losses of over €50bn. However, events on a local scale should not be
underestimated either. Hailstorm scenarios can cause billions in insured
losses in major cities. Furthermore, the vulnerability of insured property is
increasing due to structural changes, the use of new materials, and extension
of the cover.
As a result of selective underwriting, insured losses from floods remain low in

central Europe, but the loss potential is growing because the incidence of heavy
precipitation is rising, exposed areas are being developed, and concentrations
of values in the areas at risk are increasing. Scenarios involving more than one
country are likely to produce losses of several billion euros.

Weather risks in Despite global warming, extreme winters like that of 2005/2006 remain a
possibility. Heavy snowfall and prolonged cold spells during which the snow
central Europe accumulates could cause major losses – as in Austria in 2006, when the insured
market loss came to a substantial €300m. This is due to the fact that, in Austria,
storm perils covered under household policies include snow load losses,
resulting in market penetration of some 90%. By contrast, in Germany fewer
than 10% of homeowners have an extended natural hazards policy under which
snow load is covered.
Insurance aspects
Catastrophe losses have vastly increased for insurers in recent decades, five
out of six natural catastrophes being triggered by weather extremes. Munich
Re considers deductibles an effective means by which insurers can manage
the risks, since the burden is more widely shared. Sublimits of up to 50% of the
sum insured, on the other hand, are less efficient because, across the portfolio
as a whole, they are much higher than the probable maximum loss Munich Re
expects for natural hazards. However, sublimits can be useful when applied to
individual risks.
The market review (see pp. 34–41) provides a comparison of the differences
between and special aspects of the various markets, so that we can learn and
benefit from one another. Hail and storm insurance penetration in the central
European countries reviewed is 80–100%, but the figure is generally much
lower for flood risks. This is because the storm and hail perils are often covered
under the fire policy. Market penetration in Switzerland, where the insurance
of natural hazard risks (except earthquake) is normally obligatory, is virtually
100%. In Austria, unlike the other countries analysed, the state has set up
an emergency fund for exceptional natural hazard events, financed out of
tax revenues. However, there is no legal entitlement to compensation.
State help is primarily used to deal with flood risks and reduced agricultural
yields. Reduced yields have increased insurers’ loss ratios considerably in
some years, resulting in higher premiums for farmers. In central Europe, cover
in Austria is among the most comprehensive. In addition to hail, policies also
cover frost, windstorm, flood, drought, and prolonged rainfall at harvest time,
premiums being subsidised by the state to the tune of 50%. The provision of
blanket, state-subsidised multi-peril crop insurance necessitates a risk partner
ship between the agricultural sector, the insurance industry and the state.
Alternative risk transfer methods are assuming greater importance, given the
growing loss potential. The securitisation of catastrophe risks by the issue of
catastrophe bonds on the capital markets has soared since Hurricane Katrina.
In 2006, around US$ 5bn worth of catastrophe risk bonds were issued, twice
as much as in 2005. In all, catastrophe bonds currently amount to around
US$15bn. Experts believe that, in the medium term, 20% of catastrophe risk
capacity will be placed on the capital markets. In addition, catastrophe risks are
traded using insurance derivatives. Thus, companies can protect themselves
in the short term against the financial consequences of exceptional weather
factors. It is now also possible to place risks with lower return periods (25–30
years), following an initial phase in which mainly top-layer risks were securitised.
Munich Re uses catastrophe bonds to cover weather-related natural catastrophes

(windstorm Europe, hurricane USA) and offers both insurance and derivative
solutions tailored to the situation of the individual company. Munich Re’s Risk
Trading Unit provides support and advice for clients on the transfer of risks to
the capital markets.

Climate change in central Europe
The mean global temperature is constantly rising. It has increased by 0.74°C

in the last 100 years and by no less than 0.13°C per decade in the last 50 years
– double the rate for the 100-year period as a whole. The rate of increase
has been even more pronounced in Europe, with a rise of 0.95°C in the last
100 years, and as much as 1.0°C in Germany, 1.1°C in Austria and 1.4°C in
Switzerland. The rise in temperature has been even more marked in the last
few decades (see Fig. 1).
Munich Re was one of the first companies in the finance sector to draw attention
to the problem, pointing out in a 1973 publication on flooding that the growing
losses might be due to human-induced climate change. The 2007 IPCC (Inter
governmental Panel on Climate Change) report confirms the statements and
warnings we have issued over the last three decades: it is more than 90%
probable that climate-changing trace gases released into the atmosphere by
human activity are the primary cause of the global increase in temperature.
Sir Nicholas Stern’s report on the “Economics of Climate Change”, published

in October 2006, addressed the financial impact of climate change. It predicted
a reduction in annual global growth of at least 5%, or US$ 2,200bn, by the
middle of this century. The Stern Review forecasts that the costs will be limited
to 1% of annual global gross domestic product (US$ 445bn) provided we take
corresponding action. Such action would enable us to remain below the critical
dividing line of a 2°C increase in global average temperatures compared with
pre-industrial levels. This objective will only be achieved if CO2eq concentrations
can be stabilised at 445–535 ppm by 2050. Some increase is inevitable due to
growing emissions from emerging countries such as China and India.
It is also crucial that we finance steps to adapt to climate-change impacts that

can no longer be prevented. The insurance industry has a key role to play in this
by providing solutions to deal with the financial losses.

Effects during the Winter storms
winter half-year – The number of intense low-pressure systems forming over the Atlantic and
the proportion of westerly weather patterns rose steeply in the period from
the 1970s until around 1990.
– Many climate models indicate an increase in severe storms by the end of
the 21st century, despite a fall in winter low-pressure systems over the North
Atlantic. As a result, Europe’s overall exposure to winter storms will rise.
– Models show greater exposure to wind, affecting in particular a corridor
extending from the UK to central Europe, together with northern France, the
Benelux States, Denmark and northern Germany.
– Studies based on a number of climate models project that Germany’s annual
loss ratios for winter storm will increase by an amount ranging from 20% to
more than 100% between the reference period 1960–1990 and the scenario
period 2070–2100.
Torrential rain, floods
– Increased westerly air flows during the winter half-year have also resulted in
a 20–30% rise in precipitation over western and southern Germany in recent
decades, often bringing torrential rain and floods.
– A climate model analysis by the Max Planck Institute for Meteorology in
Hamburg projects an increase in winter precipitation of some 10–20% between
the 1961–1990 and 2071–2100 averages for Germany as a whole, and as
much as 30% on the North Sea coast, in Schleswig-Holstein and in the Central
German Uplands.
– Switzerland has experienced a far higher number of intense precipitation days
(at least 70mm over a minimum 500 km2 surface area) on the northern edge
and in the interior region of the Alps.
– Winter precipitation is projected to increase by some 10–20% in the Swiss
plateau region, southern Switzerland, many parts of Upper and Lower
Austria, Burgenland, Styria and Carinthia, most of the Czech Republic,
parts of the Slovak Republic and in the Alpine regions of northern Italy.
There has been a particularly steep rise in Fig. 1 Observed annual, winter and summer
average temperatures in Europe since 1970. temperature deviations
Source: CRU, 2003; Jones and Moberg, 2003 Temperature change (°C) relative to average temperature in the period 1961–1990
Year
Winter 1.0
Summer
0.5
0.0
–0.5
–1.0
–1.5
1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
Year

Climate change in central Europe Warmer winters
– By the end of the 21st century, surface temperatures in winter across northern
Germany will be 3–4°C higher than in 1961–1990.
– Temperatures in southern Germany, Switzerland, Austria, the Czech Republic,
the Slovak Republic, Hungary and northern Italy will increase by more than
4°C.
– The intensity and frequency of heavy winter precipitation will rise substantially,
and it will fall more often as rain than snow. Flood exposure will increase.
– The 2°C rise in regional temperatures already predicted for the coming decades
will result in a 40% decrease in Alpine winter sports areas with virtually
guaranteed snow. If temperatures increase by 4°C, only 30% of this already
reduced area will be left.
Shrinking permafrost areas
– The high-lying permafrost areas are receding and the increase in freeze-thaw
cycles is loosening rock and detritus, which could cause more severe rock falls
and avalanches.
– Higher winter precipitation in the form of rain will soften the soil, resulting in
more frequent landslides.
Effects during Heatwaves

the summer half-year
– In the course of the 21st century, temperatures will continue to increase during
the summer half-year: by 2.5–3.5°C in northern Germany, compared with
the 1961–1990 average, and more than 3.5°C in southern Germany, the south-
west Czech Republic, Austria, Switzerland, northern Italy and Slovenia.
Many places will experience more heatwaves.
– Scenarios for Upper Austria indicate heat periods (temperatures remain at
or above approximately 30°C for a minimum of 20 days) every two years on
average, compared with every 20 at present. There will also be significantly
more dry periods – like heat periods, often associated with high-pressure
conditions – in Upper Austria, Burgenland and Styria.
– According to the results of climate research, Switzerland, the Czech Republic,
the Slovak Republic, Hungary, northern Italy and Slovenia can also expect
more periods of heat and drought.
Fig. 2 Temperature change

between 1980–1999 and 2080–2099
Change in annual average temperature (°C)
70°N 10°C
7
5
4
60°N
3.5
3
2.5
Comparison of changes in European 50°N 2
temperatures and precipitation during the
1.5
periods 1980–1999 and 2080–2099.
1
40°N 0.5
Left: Change in annual average temperature
0
(°C). Right: Percentage change in precipita-
tion amount (subdivided into winter and –0.5
summer). –1
30°N
Source: IPCC 4 10°W 0° 10°E 20°E 30°E 40°E

Precipitation
– Total precipitation in the summer half-year will decrease, but some events
could be more intense, so that rainfall will be distributed over a smaller
number of occurrences.
– One climate model shows that average July–September precipitation will be
significantly less than in the period 1961–1990, the reduction being as much
as 20–30% in parts of Austria, northern Italy, the Czech Republic, Switzerland
and the Slovak Republic.
– Conversely, 1% heaviest five-day summer precipitation will increase in parts
of northern Italy and northern Switzerland and along a band comprising
northern Austria and many parts of the Czech Republic, Poland and eastern
Germany.
– Models indicate that a warmer climate could mean fewer low-pressure rain
systems forming in the northern Mediterranean basin due to central European
trough conditions. However, those precipitation events could become more
intense.
Thunderstorms
– The tendency towards thunderstorm formation, with the risk of hail, strong
gusts, tornadoes, flash floods and lightening, will increase to a varying
extent, depending on the region. This trend has been confirmed by observa-
tions in the Swiss plateau region and in southwest Germany, where it has
been directly measured during the past 30 years.
– The Swiss observations show that European weather conditions conducive

to thunderstorms also became more frequent in the course of the 20th century.
Consequently, local increases of this sort are also probable for other regions
of central Europe, although difficult to substantiate at the present time. Climate
models are still too approximate to indicate such effects in the projections. In
the areas of northern Italy, Slovenia and southern Austria affected by moist air
masses from the Adriatic, people will have to be prepared to deal with more
severe thunderstorms bringing hail, heavy precipitation and strong gusts.
West European trough conditions
– Repeated bouts of extremely severe precipitation along the Mediterranean coast

from southeast Spain to Italy and Slovenia cause floods between September
and November. Torrential rain events in late summer and autumn are expected
to become more frequent and intense in the Mediterranean countries.
The following chapters explain the scientific basis underlying the main perils
that affect central Europe – windstorm, flood and extreme temperatures. In
addition, the specific underwriting characteristics of the relevant countries are
summarised.
Fig. 3 Change in precipitation (%)

between 1980–1999 and 2080–2099
Winter: December, January, February Summer: June, July, August
70°N 70°N 50%

30
20
60°N 60°N 15
10
5
0
50°N 50°N
–5
–10
–15
40°N 40°N
–20
–30
–50
30°N 30°N
10°W 0° 10°E 20°E 30°E 40°E 10°W 0° 10°E 20°E 30°E 40°E

The risks
Experts paint a gloomy picture: not
only will the weather be more extreme,
it will also be extremely expensive
unless we act now. Since risks can be
insured only if they are measurable,
it is imperative that we analyse geo
scentific events and the processes
involved – and understand them.
The cold front of a low-pressure system
looms, bringing with it a bank of dark cloud.
The scene near Münchberg (Märkisch-
Oderland) in Brandenburg on 26 June 2007.
Well covered: market
penetration of storm and
hail insurance in central
Europe is between 80%
and 100%.
Windstorm risks
A single winter storm event can produce insured

losses of over €50bn.
12 Munich Re Weather risks in central Europe

Scientific aspects Insurers require such information to be able to
estimate the resulting losses. Using simulation
techniques, wind fields can be superimposed onto
There are two types of windstorm in central Europe the geographical distribution of an insurance port-
that have high accumulation loss potential for the folio. The estimated loss share per individual risk
insurance industry: winter storms and local severe can be determined on the basis of the empirical
weather events (summer storms and tornadoes). relationship between the relative extent of loss
Winter storms – meteorologically defined as extra (or ratio of loss to new replacement value or sum
tropical – occur only from late autumn (October) to insured) and the modelled windstorm speed. The
spring (April). A single winter storm event can cover projected accumulation loss resulting from an event
an area extending from the north of the United King- can then be calculated by adding up the individual
dom to south of the Alps and from the Atlantic into losses throughout the entire winter storm loss area
the heart of eastern Europe. Due to the geographical (see also the section on loss potential, page 16).
scale of this type of storm, individual losses can
run into millions, and the insurance industry can Local severe weather events: Thunderstorms and
face losses of over €50bn. associated hail and tornadoes
Local severe weather events, on the other hand, A thunderstorm consists of a towering cloud in
occur year-round, but are most frequent in summer. which there are powerful updraughts and down
Although limited in area, the complex nature of draughts. It brings storm-force and hurricane-force
such events (lightning, torrential rain, hail, down- gusts, lightening and precipitation. Thunderstorms
bursts and tornadoes) can mean accumulated are classified according to their dimensions and
insured losses of the order of several billion euros. the way in which they form.
Winter storms – Single-cell storms last, as a rule, only 30–60 min-

utes. They rarely produce severe weather events.
In Fig. 4 (illustrating tracks of historical windstorms A typical example would be an isolated summer
across Europe), the unbroken lines show the course thunderstorm.
taken by the centre of the relevant low-pressure
system. However, the areas affected can only be – Severe thunderstorms that are grouped together
identified by means of a wind field – showing, for are referred to as multi-cell storms. Such complexes
example, the geographical area affected by peak-gust last considerably longer than their single-cell
wind speeds. This is illustrated by a wind field counterparts. Multi-cell storms are found either
analysis of Winter Storm Kyrill (2007) performed by as a cluster or as a line along a cold front.
Munich Re’s Geo Risks Research experts (Fig. 9,
page 19).
Fig. 4 Tracks of historical European

windstorms since 1967
Although most storms cross

the North Sea, causing
losses in northern parts
Trondheim
of central Europe, they
occasionally follow a more
southerly track, so that
Bergen
Oslo areas of southern and
Stockholm southeast central Europe
Aberdeen
Gothenburg are also affected. This was
the case, for instance, with
Edinburgh
Lothar and Martin in 1999,
Belfast and Wiebke in 1990.
Leeds Rostock
Dublin
Amsterdam Hanover Berlin Warsaw
London
Brussels
Prague Krakow
Luxembourg
Paris
Munich Vienna
Dijon Zurich Budapest
Nantes
Geneva
Verona Zagreb
Bordeaux Genoa
0 150 300 Kilometres Marseilles
Munich Re Weather risks in central Europe 13

Tornado in Saxony-Anhalt
on 23 June 2004. The village
of Micheln was hit particu-
larly hard. Six people were
injured and 275 houses
damaged.
– Supercells are storms in which wind speed Tornadoes – Limited in area but highly destructive
increases and wind direction varies with height Tornadoes (on land) and waterspouts (over water)
so strongly that a rotating updraught is produced are large vortices of air that rotate about a vertical
that lasts for at least 10–20 minutes (meso axis. They normally extend from the edge of a
cyclone). Supercells are much larger and more storm cloud to ground level. According to Alfred
organised than normal single cells. They last Wegener’s 1917 definition – still accepted as
longer and bring heavy precipitation, being authoritative – they are fully or partially visible and
accompanied in 30% of cases by extreme have exceptionally high destructive potential. The
weather phenomena such as hail, downbursts terms whirlwind and tornado are used synonym
or tornadoes. ously. There is no difference between tornadoes in
North America, Europe and other regions of the
Hail: High accumulation loss potential world with regard to physical nature and severity –
Hail, a by-product of severe thunderstorms, is of only in terms of occurrence frequency.
major significance to the insurance industry. Hail
designates precipitation in the form of grain-size The ground-level diameter of tornadoes can vary
lumps of ice of at least 5 mm diameter, smaller par- from some tens or hundreds of metres to as much
ticles being referred to as snow pellets. The largest as 1–2 km in a number of observed instances. This
recorded hailstone was found in Nebraska, USA, broad range can also include multiple vortex tor
on 22 June 2003. It had a diameter of 17.8 cm and a nadoes, in which two or more vortices rotate about
circumference of 47.6 cm (softball size). a common centre. Tornadoes can last anything from
a few minutes to an hour. The translational speed is
The terminal velocity of hailstones increases in normally 50–100 km/h. Wind speeds inside a tornado
proportion to the square root of their diameter. can be as high as 500 km/h. The international
Thus, a 1-cm hailstone impacts at a speed of standard used to measure tornadoes is the six-
around 50 km/h, compared with 170 km/h in the category Fujita Scale, which is based on maximum
case of a 14-cm specimen. Hailstones of this size wind speeds. The 12-category Torro Scale is also
can have fatal consequences for humans and ani- used in Europe. Since weather stations seldom
mals. The vertical and, in particular, horizontal survive the passage of a tornado, intensity is nor-
speed can increase if the hailstorm is accompanied mally estimated on the basis of the extent of loss:
by storm-force gusts, and this results in much from minor property damage to total destruction.
greater damage to vertical surfaces such as walls
and windows. Tornado losses are mainly caused by wind pres-
sure and – at higher wind speeds – flying debris.
Buildings may also implode due to a sudden drop
in the pressure within the tornado, particularly if
the façade is made of sealed glass panels.

The risks Fig. 5 Tornado events in Europe 1995–2006
Rostock
Hamburg
Berlin
Düsseldorf
Frankfurt Prague
Nuremberg
Stuttgart
Munich Linz
Zurich
Graz
Geneva
Milan
Zagreb
Tornado frequencies in central Europe Average annual number of Bologna Occurrences per year
Systematic recordings can only be obtained with tornadoes per 10,000 km2 per 10,000 km2
Genoa
between 1995 and 2006. 0
the aid of a high-resolution weather radar network,
This shows that windstorms 0–0.3
tornadoes being of relatively limited dimensions.
of this type tend to be 0.3–0.6
Europe has only had such networks since the 1980s 0 50 100 Kilometer
concentrated primarily 0.6–0.9
and 1990s, so that observations of weaker torna- on central Europe. (Data 0.9–1.3
does have increased substantially in the last ten source: European Severe 1.3–1.6
years. On the other hand, no clear trend has Weather Database) Tornado event
emerged with regard to severe events. In Europe,
some 170 tornado observations are recorded each
year, in addition to around 160 waterspouts (torna-
does that form over water and do not make land-
fall). Scientists believe that the actual figures for
Europe are closer to 300 tornadoes and 400 water-
spouts per year.
Most of the tornadoes are of low to medium inten-

sity. However, in Germany for example, two F5 tor-
nadoes have been documented since 1769 and
eight F4 tornadoes since 1891 (see tornado scale,
Table 7, p. 55). Other F4 and F5 category tornadoes
have been recorded in northern France, the Bene-
lux States and northern Italy. Tornadoes appear to
occur more frequently in specific regions of central
Europe, just as the incidence is higher in Tornado
Alley in America’s Midwest.
Table 1 Observations and estimated

tornadoes per year
Country Observations Estimate Tornadoes of

10,000 km²
Germany 10 30 0.84
Austria 3 5 0.60
Switzerland 2 3 0.73
Northern Italy 15 15 0.50
Czech Republic 7 10 1.27
Slovenia 1 1 0.49
Slovak Republic 1 4 0.82
Florida (USA) 3.60
Oklahoma (USA) 3.20
Source: Dotzek, N., 2003: An updated estimate of tornado

occurrence in Europe. (Atmos. Res. 67–68, 153–161)

The risks Table 2 Insured market losses
Country Insured market Insured market

losses (€bn) due losses (€bn) due
to winter storms to hail (scenario)
Germany 12 5 (Ruhr area)
Austria 1.5 2 (Vienna)
Switzerland 2 1.5 (Zurich)
Northern Italy 0.2 2 (Milan)
Czech Republic < 0.3 < 0.5
Slovak Republic < 0.2 < 0.3
Slovenia < 0.2 < 0.3
Insured market losses

caused by winter storms or
hail in central Europe with
a 250-year return period.
Loss potential – Structural changes (extensions, special features,

maintenance situation in respect of roofs and
windows)
Loss susceptibility – New construction materials (metal, glass and
plastic façades, insulation)
Thanks to the generally solid construction techniques – Species, age, height and condition of trees in the
practised in central Europe, structural damage vicinity of the buildings
tends to be the exception, even with high wind – Broader covers (e.g. inclusion of damage to
speeds. The same applies to the effects of lightning fences and garden installations, and of the cost
and hailstorms. Damage is mainly external, i.e. of removing debris)
roofs, windows and installations affixed to the – Claims settlement practices in a new competitive
building’s exterior. environment
According to findings in countries in central Europe Loss susceptibility is not constant but a factor
for which detailed information on major loss events which can change significantly over a period of
is available, insured properties have tended to be time. Risk assessments (accumulation studies,
increasingly prone to windstorm and severe weather minimum required premium rate analyses) there-
damage in recent years (ratio of loss to sum insured). fore have to be adjusted accordingly.
This is in part due to:
Fig. 6 Distribution of 1980–2006 losses by event type:

Winter storm, hail, severe weather/tornado/local storm
Overall losses: €45bn* Insured losses €20bn*
56% 64%
20% 24%
24% 12%
Winter storm
Hail
Severe weather events/tornadoes/local storms
* At 2006 values.

Losses by storm type It is difficult to estimate tornado loss potential due
to the extreme (spatial) infrequency of such events.
Fig. 6 shows a breakdown of losses by storm type. The most violent to date was at Pforzheim, Germany,
Over half of overall losses and nearly two thirds of in 1968. The original loss figure was €45 million,
insured losses were caused by winter storms. which would be approximately €270m at 2006
values. In theory, they could strike any of central
Loss potential Europe’s major conurbations and the loss potential
would be correspondingly higher.
Table 2 shows potential insured market losses for
the given storm perils based on a 250-year return
period. Market penetration of storm and severe
weather insurance varies widely in central Europe
(see also pp. 34–41). Overall damage could thus be
greater by up to a factor of two in some cases.
Table 3 Selection of major windstorm catastrophes in central

Europe since 1990*
Year Event Country Overall losses €m* Insured losses €m*

1990 25–26.1.1990 Winter Storm Daria Germany 1,000 500
3– 4.2.1990 Winter Storm Herta Germany 500 250
25–27.2.1990 Winter Storm Vivian Germany 1,000 500
Austria 100 60
Switzerland 70 50
28.2.–1.3.1990 Winter Storm Wiebke Germany 1,000 500
Austria 100 60
Switzerland 70 50
Italy 15 No details
1992 21.7.1992 Severe weather event Switzerland 85 40
28.8.1992 Hail Germany 100 85
1994 4.7.1994 Hail Germany 420 320
26–29.1.1994 Winter Storm Lore Germany 240 200
Austria 5 No details
Switzerland 10 No details
1995 21–23.7.1995 Windstorm Emily Germany 400 300
1999 3– 4.12.1999 Winter Storm Anatol Germany 150 100
26.12.1999 Winter Storm Lothar Germany 1,600 650
Switzerland 1,500 800
Northern Italy 500 No details
2000 3– 4.7.2000 Hail Austria 160 90
2001 6–7.7.2001 Severe weather event, tornado Czech Republic 17 6
7–8.7.2001 Severe weather event, tornado Northern Italy 200 35
2002 26–27.2.2002 Winter Storm Anna Germany 570 340
24.6.2002 Hail Switzerland 220 170
5.8.2002 Hail Northern Italy 80 55
26–30.10.2002 Winter Storm Jeanett Germany 1,700 1,200
Czech Republic 20 10
16–17.11.2002 Severe weather event, windstorm Austria 100 70
25–28.11.2002 Severe weather event, landslides Switzerland 190 50
2003 2–3.1.2003 Winter Storm Calvann Germany 250 80
29–31.8.2003 Severe weather event, landslides Northern Italy 400 10
2004 9.8.2004 Hail Slovenia 15 No details
20.11.2004 Winter storm Slovak Republic 190 10
2005 7–9.1.2005 Winter Storm Erwin Germany 210 150
2006 16–17.6.2006 Hail, severe weather event Austria 80 60
28–29.6.2006 Hail, severe weather event Germany 380 230
2007 18–20.1.2007 Winter Storm Kyrill Germany 3,500 2,400
Austria 500 200
Czech Republic 50 30
20–21.6.2007 Severe weather event Switzerland 150 75
* Original values, not adjusted for inflation; converted into € at month-end/year-end exchange rates.
Source: Munich Re’s NatCatSERVICE

Winter Storm Kyrill
Meteorological development Fig. 7 Overall European windstorm losses and

insured losses 1970–2007*
Winter Storm Kyrill marked the climax
Losses in €bn
of an above-average 2006/2007
winter storm season in Europe that
included Britta, Karla, Lotte and Franz. 20
The low-pressure system which gave
rise to Kyrill formed in the central 15
Atlantic on 17 January 2007. With
maximum gusts of 135 km/h, Kyrill 10
swept across England and the North
Sea before heading for southern 5
Denmark. On the afternoon and
evening of 18 January, peak gusts 0
exceeding 100 km/h were observed 1970 1975 1980 1985 1990 1995 2000 2005
over wide areas of the Netherlands,
Overall losses per year (€bn)
Belgium, Luxembourg, and Germany. Insured losses per year (€bn)
Many regions were hit by gale-force
gusts of more than 120 km/h, the
strongest of which was registered on
the Wendelstein mountain in Germany
(202 km/h). Thunderstorms, some of Fig. 8 Insured European windstorm losses 1970–2007*
them violent, formed in the cold front
area and were accompanied by hail- Losses in €bn No. of windstorms per month
storms. Damage was also caused 35 70
by tornadoes in eastern Germany.
30 60
On the night of 18–19 January, the
storm shifted further east, maximum 25 50
wind speeds of 140 km/h being re 20 40
corded in Poland, the Czech Republic,
15 30
and Austria. Fig. 9 shows Kyrill’s wind
field – winds exceeded 100 km/h over 10 20
much of the United Kingdom, the 5 10
Benelux states, Germany, Poland, the
0 0
Czech Republic and Austria.
Jan. Feb. Mar. April May June July Aug. Sept. Oct. Nov. Dec.
Overall losses per month (€bn)

Insured losses per month (€bn)
No. of windstorms per month
* 1970–2006 at 2006 values; 2007 at original values.
Losses
Germany
United Kingdom Netherlands
– Ten fatalities
– 12 fatalities – Five fatalities
– > 1.5 million individual losses
– Estimated > 0.5 million individual losses – Damage throughout the country
– Hundreds of thousands of
in central and southern England
households suffered power cuts
– Tens of thousands of households left Belgium
– Rail transport at a standstill throughout
without power – Two fatalities
the country
– Beaching of container ship MS Napoli – Damage throughout the country
– Slight to moderate storm surge on the
North Sea coast
France Austria
– Two fatalities – > 150,000 individual losses
Switzerland
– Only northern France affected – 20,000 households hit by power cuts
– Local wind speeds up to hurricane
force (> 120 km/h)
Czech Republic Poland
– Minor damage
– Three fatalities – Four fatalities
– Damage throughout the country – Damage throughout the country

The risks
Comparison of Kyrill’s wind field with Fig. 9 Kyrill’s wind field

major historical European windstorm
events
On the basis of an analysis of wind

speeds and affected regions, the
closest comparison with Kyrill is
Winter Storm Daria (1990). Lothar
(1999) had a completely different geo-
graphical focus (France, especially
Paris, Switzerland, southwestern
Germany) and is therefore not really
a suitable benchmark.
Regarding Germany alone, Kyrill

could also be compared with Jeanett
(2002). However, both the overall
geographical scope and the duration
of Kyrill were considerably greater.
Daria (1990) cost the insurance

industry some €4.4bn at the time
(approximately €10bn at 2006 values), Gusts in km/h
most of which was incurred in the 80–90
United Kingdom. 90–100
100–110
Lothar (1999) set a new European 110–120
record for insured winter storm 120–130
130–140
losses, costing €5.9bn at original
>140
values (€7.3bn at 2006 values).
Jeanett (2002) caused a market loss

of €1.7bn in Europe (approximately
€2bn at 2006 values).
Fig. 10 Historical wind fields of windstorms

Daria, 1990, Lothar, 1999 and Jeanett, 2002 (from left to right)

Water, water, everywhere:
Ritopek, a suburb of
Belgrade, during the
Danube floods in April 2006.
Flood risks
The ratio of insured to overall flood losses

remains low in central Europe due to selective
underwriting. Despite this, both the losses and
the demand for cover are increasing. Effective
construction and land-use planning could help
loss prevention considerably.

Scientific aspects
Flood
Almost all places in central Europe are faced with

the risk of flood. It is a threat to which buildings and
installations close to water are regularly exposed,
but even areas some distance from watercourses
and lakes are not safe. The causes and effects vary
from gradual inundation by the rising waters of a
lake or water table to debris flows in raging torrents.
Floods are classified as follows:
– River floods: These occur following widespread

heavy rainfall or as a result of snowmelt.
– Flash floods: These result from intense precipita-

tion, typically during severe summer storms,
usually over limited areas where there are con-
siderable differences in relief.
– Torrents and debris flows: A mountain stream

can be transformed from a babbling brook into
a raging torrent in a matter of minutes, causing
erosion to slopes and channels. The water carries
rocks, stones, sand and earth along with it. If the
solid content is more than 30%, this is known as
a “debris flow”.
– Storm surges: Storm surges occur at the coast

and on the shores of large lakes. Rising sea levels
will further increase the risk of storm surge and
erosion on coastlines throughout the world – one
of the most serious consequences of global
warming.
Water can pose a threat in

many different ways – when
towns, villages and the
countryside are gradually
inundated (top: Prague,
August 2002), when rivulets
are transformed into raging
torrents (second from the
top: the Steinerne Mühl river
in Austria), when debris
flows consisting of water,
rocks, stones and earth slide
into valleys, engulfing
villages in their path (third
from the top: Brienz in the
Bernese Oberland, August
2005), or when water is
whipped up into a storm
surge by high winds (bottom:
storm surge, flooded Ham-
burg fish market, November
2006).

This satellite image taken on
22 August 2002 shows the
low-pressure system Ilse,
which caused catastrophic
floods along the Elbe and
its tributaries in Saxony.
Research by the German
Weather Service shows a
significant increase in the
number of these central
European weather troughs –
also known as Vb weather
conditions – in recent
decades.
Changes in central Europe’s “flood weather”? Reasons for increased flood losses
There is no doubt that a warmer global climate will The rise in flood losses is primarily due to the
raise the concentration of water vapour in the increasing development of land near rivers and
atmosphere. This will not only increase precipita- lakes. Mistakes have been and still are regularly
tion generally but also lead to more extreme rain made in construction and land-use planning. This
intensities in the event of regional or local severe situation could be rectified if responsibility for land
weather events, as observed in many places over use were transferred from a local to a higher level.
the past few years. The variability of precipitation It should be mandatory that anyone proposing to
events is growing and extreme weather conditions build be informed of current risk exposure. Such
are becoming more frequent. information would include the potential uninsur
ability of property on a specific plot of land.
Central Europe is increasingly being affected by
westerly weather patterns and Vb depressions (see People like to live near water, in many cases know-
photo above). During Vb weather conditions, low- ingly accepting the risks, and forgetting about them
pressure systems from the Mediterranean basin entirely as time passes without incident. Further-
move eastwards of the Alps in a northerly direction. more, values in exposed areas can soar, thanks to a
German Weather Service studies show that the sometimes illusory feeling of safety, if protective
incidence of Vb weather conditions has risen sharply measures (such as warning systems, flood barriers,
in recent decades. For example, in summer 2005, civil protection structures) have been installed.
there were three consecutive Vb weather periods
in the space of just six weeks. Never before have properties been as large, as
valuable and as vulnerable as at present. Heating
This does not go against the general trend towards systems and the associated oil storage tanks are
drier summers in some regions. Current climate- among the main problems. Moreover, the base-
change studies indicate that winters will become ments of apartment or commercial buildings often
wetter and summers drier (at least in southern house the central control systems of lifts and air-
Germany). However, rainfall will be heavy and con- conditioning facilities, storage rooms and some-
centrated into periods of a few days in the summer. times even computer centres.
The high intensities will bring more flash floods.
Nevertheless, the ratio of insured to overall flood
losses remains relatively small in central Europe,
largely due to the low market penetration. Further-
more, most losses involve uninsured public facil
ities such as roads, railway lines, dykes, river
channels, bridges and other infrastructure instal
lations (e.g. water supply and sewage systems). In
Germany, private-property losses accounted for
around 60% of €350m in the Whitsun 1999 floods
in Bavaria, for 43% of €8.6bn when the River Elbe
flooded in Saxony in 2002, and for just 15% of
€330m in the 1997 River Oder floods in Brandenburg.

The risks Switzerland
Central Switzerland suffered the most disastrous
floods in its history in 2005. If the heavily industrial-
ised areas around Zurich and Basle were flooded,
losses could run into billions of euros.
Italy
Italy came within a hair’s breadth of disaster when
the areas along the middle and lower reaches of
the Po escaped flooding in November 2000. A repeat
of the November 1951 floods would produce tens
of billions of euros in losses. As things stand at
present, however, less than 5% would be insured.
Czech Republic
Almost all parts of the Czech Republic have been
hit by one or more flood events in recent years.
A rainfall centre at the heart of the country could
affect the entire Czech Republic at once. Losses on
the Elbe (2002) would then be added to those of the
Oder (1997), producing a potential total of around
€5bn. A substantial portion of this would be insured.
Slovak Republic
Torrential rain and subsequent flash floods, caus-
Loss potential ing tens of millions of euros in losses, are virtually
a regular occurrence. A precipitation centre situated
slightly to the south of that of 1997 (in the region of
Major loss scenarios and their loss potential the High and Low Tatra mountains) and producing
similarly copious quantities of rainfall could affect
A handful of events stand out in the chronology of the whole country.
the last 15 years’ flood disasters (Table 4). In future,
still greater catastrophes may occur, causing even Bratislava, the capital, faces a completely different
higher losses. major loss scenario. The River Danube is joined to
the north of the city by the River Morava, and then
Germany crosses the country’s economic heartland. How-
Values along the Rhine and its tributaries are much ever, the most recent major flood events – in 2002,
greater than those of the Elbe region in 2002. On 2005 and spring 2006 – caused little damage,
the other hand, the Rhine has different hydrological despite flow return periods of some 50–100 years.
characteristics, so that it is not necessarily appro-
priate to draw direct parallels. However, it can be Slovenia
assumed that an extreme weather event on the Slovenia is also prone to events capable of trigger-
Rhine could involve economic losses considerably ing nationwide flash floods, debris flows and land-
greater than the €11.8bn Elbe losses in 2002. More- slides. The country had a taste of what might be in
over, although flood cover is not as prevalent under store in August 2005. Although Slovenia has no
household policies in western Germany, the insured major water courses, the country is crossed by two
losses could also exceed €5bn due to the Rhine typically alpine rivers, the Drava and the Sava,
area’s high industrial values. whose flood peak is potentially a multiple of the
average flow rate.
Austria
A precipitation event on the scale of 2002 (over
€400m in insured losses) could unleash disastrous
floods along the Danube if the centre were slightly
further south. In addition to losses on smaller
rivers and streams, cities like Linz and even Vienna
would have huge loss potential. Whilst the prob
ability of a Danube flood affecting Vienna is low,
the river bed within the city being designed to cope
with a 1,000-year discharge, the relatively minor
Wien river is more likely to pose a threat in the
event of heavy local rainfall. Despite strict limits on
the insurance of residential buildings, insured
losses could be over €1bn, and as much as €3bn if
the limits were raised or removed completely.

The risks Loss prevention
Losses occur when people and their possessions
are affected. To prevent losses, either the water has
to be contained or people (and their values) must
not be exposed to its effects. Structural measures
Effective prevention strategies designed to protect property can help, together with
suitable use of the land and appropriate responses
Governments, businesses and private individuals to danger (such as taking the precaution of evacuat-
must be prepared to face extreme flood events ing parts of buildings that are at risk).
involving heavy losses. Water authorities will have
to take such risks into account when assessing pro- Risk prevention
tective measures. Insurers will have to make due The risk of loss is derived from the probability of
allowance for this trend, primarily by charging pre- flood and the ensuing costs. The risk at any one
miums commensurate with the risks. Preventive place is nil if there is no possibility of flooding or
measures can be divided into four categories. values are nil at that particular location. However,
Although they are linked, each calls for a completely if we include the flash flood hazard, virtually no
different approach. developed areas of central Europe are completely
free of risk.
Flood prevention
Floods are part of the natural hydrological cycle. The risk can be minimised by implementing meas-
However, man intervenes by influencing the climate ures designed to prevent floods and losses. How-
(which results in increased and more intense pre- ever, a residual risk will always remain.
cipitation), reducing the infiltration capacity of the
soil (sealing, soil compaction due to agricultural – Reducing the underlying risk for society as a
activity), channelling the water into rivers and lakes whole is primarily a task for the state. It sets up
(via drainage ditches, sewers), and to the sea (river observation and early-warning systems, controls
regulation, removal of flood retention areas). When- flood discharge, and enacts statutory provisions
ever possible, top priority must be given to retain- that provide a legal framework for the use of
ing the water. At the same time, however, removing exposed areas. Optimum preparation for dealing
soil sealing, applying local flood detention meas- with catastrophe situations is extremely important.
ures, implementing river restoration schemes, and This primarily concerns early-warning systems
relocating dykes will have only limited effect on and effective alarm strategies.
extreme flood peaks, given the sheer volume of
water that swells a river in flood. – Property owners can help prevent loss by con-
structing suitable buildings and by being prepared
Flood control to respond to emergencies and ready to act if dis-
Engineering measures can be used to control aster strikes.
floods, such as restoration works, areas designed
to retain the water, namely flood detention basins, – The main task of insurance companies is to pro-
reservoirs and polders, or dykes that channel flood vide compensation for major financial loss. In
waters. All these measures are based on what is addition, they can and must actively support risk-
called a design flood, i.e. using a relatively high prevention measures.
flood value as a yardstick to design protection
measures.
The flood control methods most commonly used

are dykes and flood defence walls, together with
dunes and storm-surge barriers on the coast.
Germany’s North Sea coastline and river estuaries What is a 100-year flood?
alone have some 1,800 km of dykes, 650 km of
which are directly exposed to storm surge. As well A 100-year flood is the discharge or the water level
as meteorological and oceanographic factors reached at a given point on a river once in every
(wind, storm surge height and duration, wave 100 years (return period) on a long-term average.
height) dyke standards are a crucial factor where Thus, a 100-year flood is expected to occur approxi
safety is concerned. In Germany, dykes are nor- mately ten times in every 1,000 years. However,
mally designed on the basis of a 100-year water this does not indicate at all when such occurrences
level, but allowance is also made for a safety margin, will take place. Strictly speaking, it is not possible
to take account of wave run-up, and a freeboard. to define the return period for a geographical area,
Thus, for coastal dykes, the ultimate safety standard but only for a specific location. Attempts to do so –
is in the 500–1,000-year storm surge range. Safety usually in the media – are not normally based on
margins for river dykes are considerably lower. statistical findings but rather a matter of conjec-
Dyke safety also depends on other factors, such as ture, and purely subjective. Although it is possible
water permeability and resistance to erosion. to use models to draw conclusions about flood loss
frequencies, loss return periods cannot be equated
with flood return periods.

Table 4 Central Europe’s most costly flood catastrophes
since 1990*
Overall losses Insured losses

€m €m
1993 Switzerland, France, Italy 1,245 415
of which northeast Italy 520
Switzerland 350 200
1993 Rhine (Germany, France, Netherlands, Belgium, Luxembourg) 1,765 705
of which Germany 530 160
1994 Northern Italy 7,470 50
1995 Rhine (Netherlands, France, Germany, Belgium, Luxembourg) 2,315 700
1997 Oder (Czech Republic, Poland, Germany, Austria, Slovak Republic) 5,400 725
of which Poland 3,205 410
Czech Republic 1,660 280
Germany 330 32
1999 Northern Alps and northern foothills of the Alps (Germany, Switzerland, Austria) 760 290
Switzerland 315 240
2000 Italy, Switzerland 10,000 550
of which Italy 9,440 355
Switzerland 390 195
2002 Elbe, Danube 16,825 3,465
of which Germany 11,830 1,835
Austria 2,445 410
Czech Republic 2,445 1,225
2005 Switzerland, Germany, Austria, Hungary, Slovenia 2,690 1,445
of which Switzerland 1,950 1,300
Germany 172 40
Austria 515 110
Hungary 40
Slovenia 4
2006 Elbe, Danube 390 40
Austria 21 3

* Original values, not adjusted for inflation; converted into € at month-end/year-end exchange rates.
Source: Munich Re’s NatCatSERVICE
Outlook Switzerland has been well prepared to deal with a

flood catastrophe financially for some time now. A
Is universal flood protection an affordable and risk partnership has been established between the
attainable objective in the future? In terms of basic majority of Swiss cantons and their citizens, the
protection, the answer is yes but as regards protec- costs of which are shared. The object of the partner-
tion against extreme events, the answer has to be ship is to ensure the implementation of key preven-
no. The only remedy is to promote a keen aware- tion measures that involve aspects such as rural
ness of the risks involved in all sectors of society. and urban development policy, structural flood
The most effective form of loss prevention is not to defences and risk-prevention attitudes.
build in the vicinity of water.
Awareness is high in the Czech Republic following
In 2007, the European Parliament passed a direct the 1997 and 2002 flood disasters, and large sums
ive1 providing that member states must assess the have been invested in protective measures. Flood
flood risk for each river basin prospectively, on the insurance is subject to limits and a zoning system
basis of flood hazard and flood risk maps. Progress has been introduced.
has been made in containing the flood risk in a
number of member states. For instance, Germany The insurance industries of Germany, Austria and
passed a law in May 2005 restricting the develop- Italy have also produced zoning and risk models
ment of areas exposed to flooding. Austria has in conjunction with the public authorities. These
recognised the need for a closer risk partnership should be fully available from 2008.
between the state, the insurance industry and pri-
vate individuals following the 2002 floods. Italy It is to be hoped that these actions will have the
has, for some time, been contemplating the intro- beneficial effect of a reduction in loss potential.
duction of compulsory natural peril insurance.
1 irective of the European Parliament and of the Council on

D
the assessment and management of flood risks.

The dry, cracked banks
of the Rhine in Düsseldorf,
April 2007.
Extreme temperatures, snow accumulation and risks

in mountainous regions
The hot summer of 2003, record temperatures
in 2006, midsummer conditions in April 2007 –
more frequent heatwaves and their impact on
people and the economy are a challenge that
the insurance industry faces in many lines of
business.

Heatwaves and drought July 2006 – New peak levels
Just three years later, in summer 2006, new records
were set across much of Europe. July was the
Average air temperatures in Europe rose by warmest month ever recorded in Germany. Aver-
approximately 0.9°C in the last century – well age air temperatures were between 19.9°C (Helgo-
above the global average. This resulted in periods land) and 25.1°C (Karlsruhe) – higher than the pre-
of extreme heat and drought during the summer vious record month, August 2003. In Germany, all
months. Climate models indicate that such trends 31 days in July were registered as summer days
will be even more pronounced in the future. (maximum temperatures of at least 25°C) at a
number of weather stations, and up to 15 as tropical
Definition of heatwave and drought days.
Whilst there is currently no standard definition of Rising temperatures in central Europe – A prelude
the term “heatwave”, it clearly comprises two elem to subtropical conditions?
ents: exceptionally high air temperatures and a – The probability of a summer as hot as that of
period of several days’ duration. In the USA, a 2003 has increased by a factor of 20 in the last
heatwave is defined as a series of more than three two decades. According to statistical analyses by
consecutive days on which temperatures are over Swiss climatologists, this is to be expected every
32.2°C (90°F). In central Europe, the term heatwave other year in the last third of this century, that is
is usually applied to periods of several days during to say it will become the norm.
which daytime air temperatures exceed 30°C. – Another Swiss study shows that the frequency of
tropical days in Europe will have changed by the
Similarly, there is no clear definition of “drought” end of the current century. Central Europe will
or “dry spell”. Drought is commonly understood to have an additional 40 tropical days each year, and
be a relative concept that denotes a reduction in northern Italy up to 60 more (Fig. 11).
water availability in a particular region over a given
period compared with the long-term average. Thus, Drought
drought signifies a temporary shortage of water
that is normally of gradual onset, as opposed to Drought can be caused by increased evaporation
aridity, a permanent state. Opinions are divided as or reduced precipitation but is generally due to a
to whether climatological or hydrological extremes combination of both. During the prolonged high-
are in themselves sufficient to constitute drought, pressure weather conditions in summer, increased
or whether it has to be demonstrated that they have air temperatures and intense solar radiation cause
resulted in adverse consequences. The problem greater evaporation, whilst precipitation amounts
with drought as opposed to permanent aridity is are low. That is why droughts and heatwaves fre-
that nature (flora and fauna) and human beings quently coincide. Since they tend to be caused by
have not adapted to the conditions, and this gives large-scale, persistent atmospheric conditions,
rise to a high degree of vulnerability. they usually affect widespread areas. Higher water
consumption by agriculture, industry and the pop-
Heatwaves ulation in general also causes, or at least exacer-
bates, drought. In the hot summer of 2003, central
Heatwaves affect people directly, increasing the and eastern Europe suffered a major drought. Fig.
burden on the cardiovascular system and thus 12 shows the areas most severely affected.
causing higher morbidity and mortality. They can
also be a food-hygiene hazard, creating ideal con-
ditions for the spread of salmonella, for instance.
Hot summer of 2003

The meteorological summer of 2003 was a particu-
larly extreme event over much of Europe. Between
June and August, average temperatures through-
out Germany exceeded climatological averages for
the period 1961–1990 by 3.4°C. According to an
analysis by the Frankfurt University Institute for
Meteorology and Geophysics, on the basis of pre-
vious climate statistics this roughly corresponds to
a 450-year event probability, even though May and
September, which were also exceptionally hot,
were not taken into account. Moreover, the heat-
wave is an even more extreme outlier in climate
statistics since it affected not only Germany but
also much of central, western and southern Europe.
It claimed more than 70,000 lives and was, thus, one
of Europe’s worst natural catastrophes in human
terms of recent centuries.

The risks Thus, where the insurance industry is concerned,
not only are life and health business affected but
also various property classes and business inter-
ruption insurance. Increasing heat stress can also hit
tourism and the corresponding insurance products.
The summer of 2006 was also exceptionally dry,
rainfall over much of Europe being only half the All in all, we expect demand for protection to
average. Similar drought spells will become far increase as industry and commerce become more
more common in many parts of central Europe in aware of the risks posed by changing climate con-
future, due to a substantial decrease in summer ditions. In the short term, protection is already
precipitation caused by climate change. This, available against the financial consequences of
together with the projected rise in air temperatures exceptional weather in the form of weather deriva-
and associated increase in evaporation, will mean tives and weather insurance. These are based on a
a dramatic increase in the probability of drought. predefined event which triggers compensation for
loss of earnings or additional costs. The long-term
Summary tendency towards hotter, drier summers will, of
course, be reflected in pricing.
Central Europe is already exposed to heatwaves
and drought because climate change is already At the same time, policyholders are also endeav-
happening and, indeed, gaining momentum. Expos ouring to mitigate the risks by taking preventive
ure will therefore increase dramatically in future action. This can be seen by comparing 2003 and
decades, constituting a risk of change that will 2006 in the agricultural sector. Farmers have made
affect the insurance sector. changes to their land and work in line with the lat-
est agricultural best practices. They can also insure
The more frequent and intense heatwaves gener- against crop losses. Crop insurance normally guar-
ated by climate change not only significantly antees a specific sum insured, calculated by multi-
increase morbidity and mortality, primarily among plying yield per hectare by price per tonne, rather
the elderly, but also impact the economy. More than covering a certain quantity of yield. Technical
accidents occur and productivity falls. In addition, progress plays a crucial role in risk assessment.
heat and drought reduce agriculture and forestry New varieties, conservation tillage, and pesticides
yields, and falling river levels can significantly that cause less crop stress will further increase
affect revenues in inland shipping and in the utilities yields per hectare. Agriculture can and will adapt to
sector, where power plants have to be shut down if climate conditions.
insufficient water is available as coolant. The wild-
fire hazard also rises, increasing the risk of a major
destruction of values (including insured values).
Fig. 11 Are the tropics extending into Europe? Fig. 12 Precipitation anomalies, summer 2003
75°N
70°N
65°N
60°N
55°N
50°N
45°N
40°N
35°N
30°N
30°W 20°W 10°W 0° 10°E 20°E 30°E 40°E 50°E
1 5 10 20 30 40 50 60 70 80 90 100 200 Days 25 50 66 80 100 125 150 200 400
The map shows how the number of days Average summer precipitation in 2003 as
with a maximum temperature of more than a percentage of precipitation in the period
30°C will change by the end of the century 1961–1990.
if the IPCC-A2 climate scenario (pessimistic,
with very high emissions) is compared with Source: The Global Precipitation Climatology
the reference period 1961–1990.

Despite global warming,
the possibility of extreme
winters with high loss
potential cannot be
dismissed. In 2006, the
roof of the ice rink in Bad
Reichenhall (Germany)
collapsed under the weight
of snow following heavy
falls combined with a
prolonged cold spell.
The death toll was 14.
Frost, snow and ice Potential major snow load losses
All the climate models forecast warmer central

Snowstorm, frost and freezing rain are perils that European winters, with far less snow. Following a
can have disastrous consequences, frequently number of years when snowfall had been relatively
underestimated in the past. In 2004, the German low, the winters of 2004/5 and 2005/6 showed that
Federal Office of Civil Protection and Disaster the snow load risk was by no means a thing of the
Assistance organised a crisis-management exer- past. Major losses can still result if heavy snowfalls
cise involving the relevant authorities and the util combined with prolonged cold spells cause a build-
ities sector. It simulated this type of scenario: a up of successive layers.
snowstorm with freezing rain followed by sub-zero
temperatures, 75% of municipalities and rural dis- Winter 2005/2006 brings heavy snow to Austria
tricts in southern Germany being without power
for ten days. As a result, lighting, heating, cooling It began to snow heavily in Austria on 20 November
and ventilation systems, public transport, telecom- 2005, particularly in the southeast (Carinthia and
munications and workplace equipment (machines, Styria), which was soon covered in a thick layer of
computers) came to a standstill almost every- snow. This was followed, from the beginning of
where. Public life was brought to a halt and even December, by precipitation in the extreme west
military communications were affected to an extent. and south, lasting until a Genoa low brought rain
In the mock exercise, hundreds of thousands of or heavy snow to most of Austria. Major snowfalls
animals perished due to failure of the heating and continued into January 2006. The huge weight of
ventilation systems in their quarters. There were snow caused damage in forest areas as well as to
also deaths in hospitals and retirement homes buildings, especially in Lower and Upper Austria,
because the power cut affected heating and life- Salzburg, Burgenland and Upper Styria.
sustaining equipment, such as dialysis machines.
Following a more settled period, from 17 January
Weather events of this kind can cause huge losses 2006, fresh snow began to fall on top of the existing
for the insurance industry, since policies may not layer in the west of the country. The snow catas
explicitly exclude many of the costly knock-on trophe reached a climax on 7 February when the
effects (in the production and service sectors). Austrian capital was also affected. Nearly all federal
These could be covered under business inter states reported collapsed roofs; schools, shopping
ruption or liability policies, for instance. centres, businesses, sports halls, and hotels were
evacuated and churches closed. A state of emer-
gency was declared in parts of Lower Austria and
Upper Styria.

The risks The event occurrence issue
Insurers and reinsurers need a clear definition of

the snow load loss occurrence. Whilst the spatial and
temporal parameters pose no problem from the
meteorological perspective, defining the origin of
the loss is more difficult, since it depends to a large
extent on previous as well as current snowfalls – i.e.
the weight of snow already lying on a roof. In a
winter like the one described above, frequent
heavy snowfalls are interspersed with short thaws
accompanied by rain and frosty periods. The snow
load steadily increases over the weeks unless
reduced, to some extent at least, by a real thaw. If
the weight then reaches a critical point, a “normal”
snowfall will be sufficient to cause a roof collapse.
Similar problems are encountered in connection

with the definition of flood loss occurrence, and
Munich Re formulated a proposal to address the
issue some time ago. An equivalent proposal is
needed dealing with snow load losses.
– Flood: Although it has not triggered a flood, pre-

vious precipitation has saturated the ground to
Finally, the beginning of March saw the last major such an extent that infiltration is almost impeded
fall, when a low-pressure system from the Adriatic and virtually all excess water flows directly into
brought first rain, and then more heavy snow. watercourses, potentially causing flood waves
Further building collapses were reported. The even without extreme precipitation.
snow masses quickly melted in late March, as rain
arrived and temperatures throughout the country – Snow load: Prolonged snowfall (alternating
climbed to over 10°C. The snow load risk was then periods of thawing and freezing making the snow
succeeded by a rapidly increasing flood hazard. more compact) results in a high snow base load.
Fortunately, the rain soon ceased, and the country Even moderate further falls may cause losses.
was spared an additional disaster in the form of
floods. In principle, therefore, hours clauses are not appro-
priate for either category of peril.
The snow proved a costly event for Austria. The
economic loss is estimated to have been around
€500m and the insured market loss some €250m.
The scale involved is due to the fact that snow
load losses to residential buildings, which are not
insured in most other countries, are covered under
storm policies in Austria. Market penetration is over
90%, whereas in the east of Bavaria (Germany),
where similarly spectacular losses occurred, fewer
than 10% of homeowners have extended natural
perils insurance, which covers snow load hazards.

Avalanches and other
hazards common to
mountainous areas arise
suddenly and unexpectedly.
Protective measures are
therefore more complex
than for flood events.
Avalanches, landslides and A number of spectacular events in the summer of

2006 (rockfall at the St. Gotthard Pass, collapse of a
similar phenomena
rock formation on the Eiger, glacier outburst flood
in Samedan) have also highlighted the effects of
Mountainous regions are exposed to characteristic climate change in the mountains. Permafrost areas
natural hazards. Essentially, these are flash floods will thaw and glaciers shrink still more quickly as a
and various types of mass movement, i.e. debris result of global warming. This will tend to destabil
flows, landslides, rockfalls, mass flows, glacier ice ise sloping ground, producing more loose material,
avalanches, glacial lake outburst floods and, of which will be carried downhill by landslides and
course, snow avalanches. They have huge destruc- debris flows if there is heavy precipitation. Although
tive potential but are local occurrences, damage an increase in the number of debris flows is not
being confined to a limited area. They, accordingly, statistically proven, the causal link is evident.
tend not to have major significance for the insurance
industry. The cost of preventive measures to counteract
mountain risks compared with the losses involved
The winter of 1998/99 was marked by exceptional is doubtless more disproportionate than in the case
avalanche occurrences which claimed 79 lives and of flood – in central Europe at least. Switzerland
caused economic losses in excess of €800m (€1bn at alone has invested over €1bn in avalanche defence
2006 values). Most of the insured losses occurred in structures since the severe avalanches of winter
Switzerland, where the loss borne by the insurance 1951. This is mainly due to the fact that such occur-
industry was nearly €200m (€250m at 2006 values). rences are usually sudden and unforeseen, and
therefore extremely hazardous to human life. Pro-
The average annual total of mass-movement losses tecting human life rightly calls for the implementa-
in central Europe is also relatively low. Moreover, tion of more costly measures than the prevention
this type of risk can be avoided provided the danger of property damage alone.
zones, which are marked or at least known in most
countries, are respected.

Underwriting
aspects
Loss experience is no longer a criterion
for the assessment of future losses. It is
time to re-analyse the risk situation in
Europe due to weather-related perils.
Value concentrations are increasing –
offering a growing target for natural
hazards. Covers have to be changed in the
light of this trend.
Underwriting aspects
Specific characteristics
of the target markets
Market penetration for storm and hail cover in the central European markets Germany
reviewed is fairly high, at around 80–100%. This is mainly due to the fact that
Obligatory cover
both risks were often covered under fire policies in the past, or considered in
association with the fire peril. Market penetration is much lower in the case of
flood risks. As cover for natural perils is obligatory in Switzerland, market pene
tration for natural hazard insurance in general is virtually 100%. In Slovenia Market penetration
too, almost 100% of personal lines policyholders have at least windstorm and
hail cover, both still being insured under the fire policy. Similarly, market
penetration in the Czech Republic and in the Slovak Republic is over 90% in Available covers
(shows current terms and
the case of private households as a result of regulations in force prior to the
conditions for the main lines
political opening-up of the East. Since the 1997 and 2002 floods, this cover has
of business)
only been offered in the Czech Republic subject to sublimits.
The following tables list further differences between the various markets
together with the characteristics of each one.
Germany
In Germany, cover is available for almost all weather-related

perils, such as windstorm, hail, flood, landslide and snow load,
storm and hail being marketed in tandem. It is also possible to
insure in addition against flood and other natural hazards, as
part of a package in the case of personal lines business and small
Exclusions
to medium-sized enterprises, and also individually for industrial
(relating to weather risks
risks. and property insurance,
excluding engineering)
The natural hazard cover for which there is most demand is
storm/hail. It has also been available for longer than any of the
others, and is therefore part of the standard package for most
products.
Flood and extended natural perils were introduced more recently,

gradually gaining a foothold in the private insurance market only
after deregulation in 1994. Until then, cover extending beyond
windstorm and hail was only available in Baden-Württemberg
and throughout the former German Democratic Republic (GDR),
where it had been obligatory and was provided by the state
insurer. This explains why the insured flood losses were so high
in 2002. Market penetration for flood cover is less than 10% in
Germany as a whole, and even lower in the case of other natural
hazards.

Windstorm/hail Flood Other weather risks
No legally obligatory covers. Art. 3 of Council Directive 92/49/EEC of 18 June 1992 provided that the monopoly which existed in Germany at
the time had to end by 1 July 1994. This concerned the Hamburger Feuerkasse’s windstorm insurance monopoly and Baden-Württemberg’s
law of 7 March 1960 relating to the compulsory cover of buildings against storms and other natural hazard losses.
Residential: approx. 75–80% Residential: <10% Residential: << 10%

Commercial/industrial: approx. 20–30% Commercial/industrial: <10% Commercial/industrial insurance: << 10%
– General terms and conditions of household – Special terms and conditions for the – Special terms and conditions for the
contents insurance (“VHB 2008”) insurance of additional natural hazards insurance of additional natural hazards
– General terms and conditions of household (“BWE 2008”) (“BWE 2008”)
buildings insurance (“VGB 2008”) – General terms and conditions for the – General terms and conditions for the
– General terms and conditions of windstorm insurance of additional perils under insurance of additional perils under
insurance (“AStB 2008”) industrial fire policies (“ECB 2008”) industrial fire policies (“ECB 2008”)
– General terms and conditions for the – Terms and conditions for the insurance of – Terms and conditions of insurance for
insurance of additional perils under additional perils under fire business additional perils under fire business
industrial fire policies (“ECB 2008”) interruption policies for industrial and interruption policies for industrial and
– Terms and conditions for the insurance of commercial enterprises (“ECBUB 2008”) commercial enterprises (“ECBUB 2008”)
additional perils under fire business – General terms and conditions for – General terms and conditions for
interruption policies for industrial and comprehensive property and commercial comprehensive property and commercial
commercial enterprises (“ECBUB 2008”) insurance (“VSG 2008”) insurance (“VSG 2008”)
– General terms and conditions for – General terms and conditions for electronic – General terms and conditions for
comprehensive property and commercial equipment insurance insurance (“ABE electronic equipment insurance insurance
insurance (“VSG 2008”) 2008”) (“ABE 2008”)
– General terms and conditions for electronic – General terms and conditions for machinery – General terms and conditions for machinery
equipment insurance (“ABE 2008”) breakdown insurance (“AMB 2008”) breakdown insurance (“AMB 2008”)
– General terms and conditions for erection – General terms and conditions for erection – General terms and conditions for erection
all risks insurance (“AMoB 2008”) all risks insurance (“AMoB 2008”) all risks insurance (“AMoB 2008”)
– General terms and conditions for machinery – General terms and conditions for machinery – General terms and conditions for machinery
breakdown insurance (“AMB 2008”) business interruption insurance (“AMBUB business interruption insurance (“AMBUB
– General terms and conditions for machinery 2008”) 2008”)
business interruption insurance (“AMBUB – General terms and conditions of contract – General terms and conditions of contract
2008”) works insurance (“ABN 2008” and “ABU works insurance (“ABN 2008” and “ABU
– General terms and conditions of contract 2008”) 2008”)
works insurance (“ABN 2008” and “ABU
2008”)
– Storm surge – Storm surge – Flood

– Ingress of rain, hail, snow or dirt through – Groundwater that has not penetrated to – Loss or damage to insured objects
windows, external doors, or other openings the surface of the ground located in buildings that are not ready
not properly closed – Loss or damage to insured objects located for occupancy
– Avalanche in buildings that are not ready for – Loss or damage to movable objects
– Loss or damage to buildings or parts of occupancy outdoors
buildings that are not ready for occupancy – Loss or damage to movable objects – Dryness or drying-out
and to property in such buildings outdoors
– Loss or damage to movable objects
outdoors
– Damage to property affixed to the building
exterior (e.g. signs, neon displays)
– Damage to objects not yet installed or
erected and operational or that have not
yet successfully undergone trials (erection
works)
– Damage to shop and display windows
(“VGB 2008”)
(Continued overleaf)

Underwriting aspects Germany
Definitions of perils
Standard deductibles, loss limits, annual aggregate limits (AAL)
Windstorm conditions Flood

Deductible Loss limit Deductible Loss limit
VHB None None
VGB None None
AStB Max. €500 None
BWE 10% of loss, None
min. €500,
max. €5,000
or 1–5% of
sum insured* None
ECB €2,500–12,500 Max. €5m AAL** Max. €50,000** 20% of sum Deductibles (D)/loss limits (LL)/
insured, annual aggregate limits (AAL)
max. €5m**
ECBUB €2,500–25,000 Max. €5m AAL** Max. €50,000** 20% of sum Zoning
insured,
max. €5m**
ABE Min. €500 None Min. €500 None
AMB Min. €500 None Min. €500 None Specific market features
AMBUB Min. 2–5 None Min. 2–5 None
days **/*** days **
AMoB Min. €500** Various with Min. €500 Various with
turnover policies turnover policies
ABN Min. €500** Various with Min. €500 Various with
ABU Min. €500** Various with Min. €500 Various with
* According to a survey by the German Insurance Association.

** More for industrial risks, depending on the individual case.
*** Substantially higher deductible in the case of project business interruption.
Austria Austria
Obligatory cover
In Austria, private insurance companies cover windstorm, rock-
fall, falling stones, landslide, hail and snow load. Following
Market penetration
floods in 2002 and 2005, there has been an increase in the
number of products covering natural hazards including flood.
First-loss covers are frequently utilised, loss limits being rela- Insurance terms and
tively modest (for example €4,000 or €8,000). Sublimits under conditions
commercial and industrial policies are often expressed as a
Available covers
percentage of the sum insured.
Another feature specific to Austria is a national disaster fund Main exclusions

financed out of tax income. It provides aid in the event of natural
hazard occurrences of exceptional proportions. The primary
beneficiaries are private households, but there is no legal entitle- Definitions of perils
ment to benefit. Moves are now afoot to significantly extend the
scope of natural hazard cover by introducing higher limits and
achieving greater market penetration.
Specific market features

– Windstorm is a weather-related air – Flood is inundation of the insured – Landslide is the natural slide or fall of
movement of at least force 8 on the premises by substantial quantities of earth or rock masses.
Beaufort Scale (min. 63 km/h). surface water due to – Snow load is the effect of the weight of
– Hail is solid precipitation in the form a) the bursting of the banks of surface (still snow or ice masses.
of ice pellets. or flowing) bodies of water, – Avalanches are snow or ice masses that
b) precipitation, descend the side of a mountain.
c) the emergence of groundwater at the
surface as a result of a) or b).
– Backwater means that, contrary to the
intended purpose, water enters a building
through drainage pipes, or installations
connected to such pipes, when surface
(standing or flowing) bodies of water
burst their banks, or as a result of
precipitation.
See table on the left See table on the left See table on the left (as for flood)
Two zones, broken down by postcode Four ZÜRS exposure classes (ZÜRS: zoning No zoning available
system for flooding, backwater and heavy
rain)
Storm surge excluded Storm surge excluded
No No No
Residential: approx. 80% Residential: approx. 40–50% Residential: approx. 40–50%

Commercial/industrial: approx. 20–30% Commercial/industrial: approx. 20–30% Commercial/industrial: approx. 20–30%
Separate conditions for windstorm and hail Specific conditions for natural hazard Specific conditions applicable to natural
insurance hazard insurance
Household, owner-occupied housing, Household, owner-occupied housing, Household, owner-occupied housing,

commercial, industrial, etc. commercial, industrial, etc. commercial, industrial, etc.
Avalanche, storm surge, flood, inundation Losses caused solely by the rise of a water
table.
Wind speeds of over 60 km/h Flood is the inundation of the insured Flood debris accumulation is caused
premises. by mass movements of soil, water, mud,
and other components triggered by the
natural effects of water.
No insurance pool Terrain model (Hora) No insurance pool

Underwriting aspects Switzerland
Obligatory cover
Market penetration
Switzerland Insurance terms and

conditions
Under Swiss legislation, fire policies also have to cover natural
hazard risks with the exception of earthquake. Natural perils are Available covers
covered by public-legal monopolies in 19 out of 26 Swiss can-
Main exclusions
tons and by private insurers in the remaining seven. The rates
for elementary (natural) perils cover are fixed by the state.
The cantonal monopolies pool their natural hazard losses via
the Intercantonal Reinsurance Union, the equivalent for private
insurers being the Swiss Natural Perils Pool. Under both systems
the combined, aggregate losses (net of reinsurance) are refunded
to the relevant monopolies or private insurance companies in
accordance with a predefined breakdown.
These pools, which require a high degree of solidarity between

insurers, have worked successfully for a number of decades.
Czech Republic and Slovak Republic Czech Republic and Slovak

Republic
Natural hazards were included as part of basic cover for personal
Obligatory cover
lines policyholders in the Czech Republic and in the Slovak
Republic until the 1990s, with sums insured in the order of a few Market penetration
thousand euros. Deductibles were rarely applied under private
household buildings and contents policies.
Sums insured for natural hazards under commercial and indus- Insurance terms and
conditions
trial policies depend on the type of business, the location, and
the other risk parameters that apply in the individual case. If
there is above-average exposure to natural hazards, individual Available covers
occurrence limits or maximum exposure limits are imposed.
Deductibles can be as high as 10%, but are generally lower.
Following the flood events of 1997 (primarily in Moravia) and Most frequent exclusions
August 2002 (mainly affecting the Vltava and Elbe river basins)
there were proposals in the Czech Republic to ensure that the
terms and conditions of flood and inundation policies were more
commensurate with the risks, for instance by reducing loss limits
and increasing deductibles. At the same time, substantial
amounts were invested in measures designed to prevent or miti-
gate losses.
Deductibles
Increasingly, rates in both countries (for private buildings and

contents insurance as well) are more in line with the individual
risk parameters. Thus, policyholders living on exposed rivers Specific market features
will have to accept higher premiums and/or deductibles and
lower indemnity amounts than in the past.

Obligatory under fire policies Obligatory, under fire policies Obligatory under fire policies
Approx. 100% Approx. 100% Approx. 100%
Same as the fire sum insured Same as the fire sum insured Same as the fire sum insured
Under the fire insurance policy Under the fire insurance policy Under the fire insurance policy
Avalanche, storm surge, flood, inundation Losses caused solely by the rise of a water
table
Wind speeds of over 75 km/h Flood is the inundation of the insured Flood debris accumulation is caused by
premises. mass movements of soil, water, mud and
other components and is triggered by the
natural effects of water.
Intercantonal Reinsurance Union (IRV), Intercantonal Reinsurance Union, Swiss Intercantonal Reinsurance Union, Swiss
Swiss Natural Perils Pool Natural Perils Pool Natural Perils Pool
No No No
Residential: over 90% Residential: over 90% Residential: over 90%

Commercial lines: over 50% Commercial lines: over 20% Commercial lines: over 20%
Industrial lines: over 80% Industrial lines: over 40% Industrial lines: over 40%
General terms and conditions for natural General terms and conditions for natural General terms and conditions for natural
hazards, terms and conditions for commer- hazards, terms and conditions for commer- hazards, terms and conditions for commer-
cial and industrial enterprises cial and industrial enterprises cial and industrial enterprises
Buildings and contents insurance, insurance Buildings and contents insurance, insurance Buildings and contents insurance, insurance
for commercial and industrial enterprises, for commercial and industrial enterprises, for commercial and industrial enterprises,
engineering, etc. engineering, etc. engineering, etc.
General exclusions (e.g. unfinished General exclusions (e.g. unfinished General exclusions (e.g. unfinished
buildings under buildings insurance) buildings under buildings insurance) buildings under buildings insurance)
Windstorm is the dynamic effect of an Flood constitutes an incursion of water Landslide signifies the movement of stones
air mass on the insured premises and is that remains in or flows through the insured or earth masses from a higher to a lower
defined as being at least force 8 on the location for a given period of time. location due to natural hazards.
Beaufort Scale (wind speeds 62–74 km/h)
at the insured property.
Residential: approx. €25 Residential: approx. €25 Residential: approx. €25

Commercial lines: approx. €250 Commercial lines: approx. €250 Commercial lines: approx. €250
Industrial lines: approx. €7,500 Industrial lines: approx. €7,500 Industrial lines: approx. €7,500
No insurance pool No insurance pool No insurance pool

Underwriting aspects Slovenia
Obligatory cover
Slovenia
Market penetration
Windstorm and hail are included in the basic cover in Slovenia.

They are covered under all private property policies without loss
limit. Commercial and industrial policyholders also have wind- Insurance terms and
storm and hail cover for the most part. conditions
Losses incurred in the past along the Sava and Drava rivers have
Available covers
increased demand for other natural hazard covers such as flood.
However, market penetration in Slovenia remains low compared
with other countries.
Most frequent exclusions
In general, loss limits and deductibles are not common under
private buildings and contents policies. In the case of commer-
cial and industrial risks, the normal practice is to assess the spe-
cific risk, maximum loss limits and/or deductibles being based
on the particular risk parameters (e.g. location, concentration of
values, vulnerability).
Deductibles
Flash floods that trigger landslides are becoming more common
in Slovenia due to climate change and topographical factors.
This could bolster demand across the board for cover of weather
risks other than windstorm, hail and flood.
Italy Italy
Obligatory cover
Private insurance companies normally include storm and hail
cover under the fire policy. Flood cover is rarely granted to pri-
Market penetration
vate households. Whilst it can be covered under commercial and
industrial policies, it is not available on a stand-alone basis but
included under the fire policy, subject in most cases to loss limits.
Private individuals who live in a designated disaster area can Insurance terms and
apply for state compensation. The scheme has only been used conditions
for flood and earthquake events in the past, but not as yet for
windstorm events. Deductibles
Flood risk zoning will be available from 2008, which is when

SIGRA, a project to develop software for assessing the flood Available covers
exposure of individual risks or portfolios, is due for completion.
It will include the flood plains of all Italy’s major rivers and is also
Main exclusions
expected to be made available to the insurance industry in the
course of 2008.
Perils covered

No No No
Residential: 100% Residential: 50% Residential: 50%

Commercial lines: over 90% Commercial lines: 5% Commercial lines: 5%
Industrial lines: over 90% Industrial lines: 10% Industrial lines: 10%
General terms and conditions for fire and General terms and conditions for fire and General terms and conditions for fire and
household insurance, terms and conditions household insurance, terms and conditions household insurance, terms and conditions
for commercial and industrial enterprises for commercial and industrial enterprises for commercial and industrial enterprises
Buildings and contents insurance, insurance Buildings and contents insurance, insurance Buildings and contents insurance, insurance
for commercial and industrial enterprises, for commercial and industrial enterprises, for commercial and industrial enterprises,
engineering, etc. engineering, etc. engineering, etc.
General exclusions (e.g. unfinished General exclusions (e.g. unfinished General exclusions (e.g. unfinished
buildings under buildings insurance) buildings under buildings insurance) buildings under buildings insurance)
Windstorm is a weather-related air mass Flood is the accumulation of enormous Landslide signifies the movement of stones
with a wind speed of more than 60km/h at water masses, caused by exceptional or earth masses from a higher to a lower
the insured premises. rainfall, that exceed the capacity of the location due to natural hazards.
water systems or are not able to drain away.
Residential: €0 Residential: €0 Residential: €0

Commercial lines: €0 Commercial lines: €0 Commercial lines: €0
Industrial lines: €0 Industrial lines: €0 Industrial lines: €0
No No No
Residential: 20–30% Residential: No, only in exceptional Residential: No

Small, medium-sized industrial: 60–80% instances, very high premiums Small, medium-sized industrial: 60–80%
Large industrial: over 95% Small, medium-sized industrial: 60–80% Large industrial: over 95%
Large industrial: over 95%
No separate terms and conditions for Specific natural hazard insurance terms and Specific natural hazard insurance terms and
windstorm and hail; included in the fire conditions, included in the fire policy conditions, included in the fire policy
policy
Household, owner-occupied housing, Commercial, industrial: Commercial and industrial insurance:

commercial, industrial Sublimit often 50% of the fire sum insured Sublimit often 50% of the fire sum insured
Yes, depending on the type of risk in the Yes, depending on the type of risk in the Yes, applied according to the individual risk
individual case individual case type
Earth movement, volcanic eruption, Heavy seas, high and low tide, seaquake, Static flood (water is not flowing), earth-
seaquake, inundation, flood, ingress of salt landslide, subsidence, local landslide, quake, avalanche, volcanic eruption,
water, landslide; also exclusion of specific humidity, dripping, infiltration of dampness dampness, dripping, infiltration of damp-
parts of buildings e.g. chimneys, antennae, through walls (literally exudation), ness via walls (literally exudation),
satellite dishes, solar installations infiltration; original version: “mareggiata, infiltration; original version: “allagamenti,
marea, maremoto, frana, cedimento, terremoto, slavine, valanghe, eruzione
smottamento, umidità, stillicidio, trasuda- vulcanica, umidità, stillicidio, trasudamento,
mento, infiltrazione” infiltrazioni”
Weather event: (1) Hurricane, wind, Flood, alluvial deposits, static flood/ Local landslide, landslide, subsidence;
windstorm, thunderstorm, hailstorm, dampness also caused by earthquake; original version: “smottamenti, franamenti,
tornado; original version: (1) “Uragano, original version: “inondazioni, alluvioni, cedimenti del terreno”
vento e cose da esso trascinate, bufera, allagamento/bagnamento anche causato
tempesta, grandine, tromba d‘aria ed altre da terremoto”
simili manifestazioni atmosferiche”; (2)
Moisture due to hailstorms, snowmelt

Residential: State compensation if the event is Residential: State compensation if the event
designated a disaster, no clear definition is designated a disaster, no clear definition
Commercial and industrial: Insurance solution Commercial and industrial: Insurance solution
only when SIGRA risk zoning available in 2008 only

Agricultural insurance
Reduced agricultural yields substantially increase One alternative is a comprehensive crop insurance
insurers’ loss ratios in individual years. Farmers pay scheme covering individual farmers against reduc-
the price. tions in yield. This type of system, which allows
farmers to actively manage the risk, is found mainly
Increasing weather extremes in Europe, such as in the USA and Canada, but has also been intro-
prolonged hot spells, severe hailstorms or flash duced in Spain and Portugal. In the event of loss,
floods, put strains on agriculture. Demand for the the farmer is legally entitled to the insured yield
cover of crop failure due to natural hazards is grow- amount for that particular farm, payment being
ing. made immediately after the loss has occurred.
Many European countries have a state subsidy sys-

tem under which ad-hoc payments are made for
uninsurable crop losses caused by natural hazard
events. Although, in the event of an officially desig-
nated natural disaster, direct payments of this kind
reduce the losses sustained by farmers in the area
affected, the system is not particularly efficient for
a number of reasons: compensation amounts lack
transparency and depend on the budget of the
country concerned; farmers have no legal right to
payment; the administrative effort involved is
extremely high, resulting in considerable payment
delays and liquidity problems for the farms; com-
pensation tends to be insufficient, often constituting
a mere fraction of the actual loss.
Loss caused by drought at a

vineyard.

Underwriting aspects Risk-partnership role models
Extended cover options are already available in

some central European countries. Austria has one
of Europe’s most comprehensive crop insurance
systems. The insured natural hazards include hail,
frost, windstorm, flood, drought, prolonged rain at
harvest time and other perils. The state grants a
50% premium subsidy. The country’s main crops
are insured, including winter cereals, fruit and
vines.
Farmers in the Czech Republic and in the Slovak

Republic can also insure standard crops such as
wheat, oleaginous fruits, fruit and vines against
hailstorm, fire, windstorm, flood, and landslide.
The state pays 30% of the basic premium in the
Czech Republic and 50% in the Slovak Republic.
Plans have already been initiated in Italy to develop

multi-peril cover going beyond hailstorm insurance,
the relevant legal basis having been established in
2004. The model is, at present, still at the pilot stage.
Farmers can use the system, under which the state
Systems in the different countries grants a 50% premium subsidy as in Austria, to
insure against crop failure due to hailstorm, wind-
storm, freeze, frost and drought.
Yield reductions due to natural hazards can pro-
duce high loss ratios for the insurance industry in
individual years. Insurance premiums are therefore Risk partnership between farmers,
often beyond farmers’ financial means, and state
support is generally indispensable. Premium sub-
insurers and state
sidies reduce the financial strains on farmers, who
are then more willing to take out insurance, the The USA’s unique insurance system shows that the
net result being that market penetration, regional key to successful cover is risk partnership between
diversification and risk spread increase. In the USA, farmers, insurers and the state.
some 60% of agricultural insurance premiums are
subsidised, and approximately 80% of agricultural The development of multi-peril crop insurance is
land is insured against crop failure due to natural becoming increasingly important to agriculture
hazards. due to the growing number of extreme weather
events in Europe. Some countries are already con-
The German Insurance Association has produced sidering a change of approach and this line must
a draft for multi-peril crop insurance. Again, this is now be pursued even more vigorously. The main
based on a system of state subsidies, although objective is to achieve an efficient allocation of the
corresponding legislation would have to be passed. available resources, which involves using state
Farmers can insure against crop failure due to hail- funds to subsidise agricultural insurance premiums
storms, but there is currently no comprehensive rather than channelling them into direct and ad-hoc
cover which includes all the relevant natural hazards. payments. Provided such systems are backed by
the necessary legislation, farmers will have a
Hail insurance with optional limited windstorm, secure, long-term, active risk-management tool.
flood and other covers is also available in Switzer
land. However, there is no comprehensive, state-
subsidised multi-peril crop insurance as such.

Motor accidental damage (AD) insurance
Hail is an event which leaves a definite mark on Future loss potential

motor AD insurance. However, market penetration
varies considerably – from around 90% in Switzer-
land to only 20% in Italy. Worldwide, there has been a sharp increase in
catastrophic losses for insurers in recent decades,
Hail is one of the costliest natural catastrophes weather extremes accounting for five out of six
where motor AD insurance is concerned. More natural catastrophes. Extreme weather events are
over, in the countries reviewed, hail events are also clearly the main cause of natural hazard losses
among the most important and, at the same time, under motor policies. Many atmospheric and
best insured weather extremes. hydrospheric processes will produce record losses
as a result of climate change, and the probability
The main classes of business which include hail of major losses will likewise increase. Furthermore,
cover are motor and property. This can be seen growing urbanisation will mean greater value
from the hailstorm which swept across Munich on concentrations, particularly with regard to motor
12 July 1984. Of the DM 1.5bn overall losses, motor vehicles, and higher losses.
policies accounted for more than DM 800m and
property insurance more than DM 300m, the The insurance industry will therefore have to brace
remainder consisting of damage to aircraft and itself to deal with new record-breaking events, and
agriculture losses. The principal reason for the high motor accumulation loss frequencies and amounts
motor AD exposure is that vehicles can be damaged will consequently increase. The new situation will
by hailstones of just 2 cm in diameter, whereas lead to changes in cover (e.g. deductibles, approved
damage to buildings results only if the hail meas- repairer schemes).
ures more than about 4 cm.
Hail cover is very widespread in property insurance,

often being included with windstorm or fire. In the
case of motor insurance, on the other hand, market
penetration varies considerably owing to differ-
ences in consumer attitude. In Switzerland more
than 90% of registered vehicles are insured against
hail, in Germany over 75%, and in Italy a mere 20%.
Since motor vehicles can

be damaged by hailstones
of just 2 cm in diameter
(compared with 4 cm in the
case of buildings) hail often
proves a very expensive
event for motor insurers.

Underwriting aspects
Level of the Rhine

at an all-time low
(26 September 2003).
Marine insurance
Marine risks – On water and on land
Whether in the Baltic, in the Mediterranean or Although the Mediterranean basin enjoys a tem-
on inland waterways, the transport of goods perate climate, violent storms can occur here, too.
by water is exposed to special perils in central In addition, shipping in the Bosporus has grown
Europe as elsewhere. The weather, in particular, substantially following the opening-up of the
takes its toll. former Soviet Union. This combination of bad
weather and an increase in traffic is having a nega-
tive impact on safety.
Baltic Sea – Fog and freezing conditions
North Sea and Baltic – Millions of
The shipment of goods plays a key role in our glob
alised economy, with its international division of
transshipments
labour. According to the World Trade Organization,
the annual increase in the volume of international Cargo can be affected by adverse weather condi-
trade currently outstrips the growth in worldwide tions even when the sea voyage has ended. On
GDP (2005: 6%, 2004: 9.5%). As the volume of trade reaching port, for example, it is exposed to high
increases so, too, does the number of shipments. winds and storm surges in transhipment facilities.
The new EU member states are also making their Transshipments handled by Germany’s North Sea
presence felt, and the focus of cargo movements and Baltic ports have risen by 17% in volume, show-
within central Europe is shifting from west to east. ing how crucial such facilities are to meet demand.
Another reason for the greater volume of trade is Storage capacity is constantly being increased: the
growing demand for fossil fuels. new JadeWeserPort container terminal in Wilhelms
haven, for instance, the CT 4 terminal extension in
Accidents are a regular occurrence in the Baltic due Bremerhaven and Hamburg’s new, fully automated
to the huge volumes of traffic at various critical Altenwerder container terminal (combined total
shipping points, a situation further aggravated by capacity of 12m TEU annually1). The concentration
weather conditions. The principal risk to shipping of values at storage sites is growing rapidly as a
is not so much extreme windstorms, as in the result of this impressive expansion in existing port
Atlantic, but a combination of frequent and sudden facilities.
fog and bad weather. The prolonged winter cold
spells, too, are fraught with hazard, loss potential
also being higher because, in many cases, due to
high freight rates and lack of appropriate vessels,
the ships do not have ice-class hulls.
1 http://www.bremenports.de/ and http://www.terminal-altenwerder.com/CTA_Containerterminal.59.0.html.

Storage areas are also constantly being extended Inland shipping losses
to cope with the boom in vehicle imports and
exports. Currently, vehicle storage facilities in port
areas such as Bremerhaven have a capacity of up to Another link in Europe’s global logistics chain that
120,000 vehicles. Loss exposure and the potential has been hit by weather extremes in the past few
for major losses due to water, hail or high winds years is inland shipping. This was demonstrated by
are accordingly high. the high water levels and raging floods of summer
2002, and by contrast the low water levels and nar-
Inland warehouses and vehicle storage sites are row fairways during the same period in 2003 and
also increasingly exposed to flood risks, as shown 2006. Entire stretches of European inland water-
by the floods that affected many parts of Europe in ways had to be closed to shipping for weeks due to
2002. Aggregate market losses at vehicle storage exceptional weather conditions – resulting in sig-
sites alone were in the order of US$ 35m. In summer, nificant loss of revenue. However, the financial
such facilities are exposed to the risk of hail, whilst losses sustained by the inland shipping sector
snow damage to the hail nets in winter can also were covered under loss of hire, trade disruption
result in severe damage to vehicles. Moreover, and marine consequential loss policies, and thus
natural events have tended to occur at completely transferred to the insurance industry. This high-
unexpected locations in the past few years, for lighted the need to define occurrence in a way that
instance hail on the North Sea coast. Good risk clarifies the temporal and geographical allocation
assessment, adequate rates and efficient risk-accu- of losses. However, annual aggregate limits per
mulation management are therefore absolutely policy are also required in order to limit accumula-
indispensable to the insurance industry. tions. These two measures will help to safeguard
the position of the insurance industry.2
Hedging weather risks via the capital markets
The loss potential from weather-related natural The convergence of the (re)insurance and capital
catastrophes has now reached a critical point as markets has given rise to new risk transfer tools,
regards amount and severity, which poses new modelled on established capital market instruments.
challenges for the insurance industry. Munich Re, The catastrophe bond market has experienced
like all leading international reinsurers, is exposed spectacular growth, particularly since Hurricane
to the accumulation loss issue and resulting loss Katrina. Some US$ 5bn worth of catastrophe risk
potential. The way forward lies in exploring alter- bonds were issued in 2006, double the 2005 figure.
native methods of risk transfer and exploiting the Experts believe that, in the medium term, up to
virtually inexhaustible capacity of the international 20% of catastrophe risk capacity could be placed
capital markets to absorb such risks. on the capital markets. Catastrophe risks are also
traded as insurance derivatives. These can be
purchased to mitigate the financial impact of bad
weather.
2 Detailed article in Schadenspiegel 3/2005 special feature issue on water, pp. 14–17.

Underwriting aspects Principal-at-risk bonds, in which the full nominal
value of the bond is at risk, have now established
a foothold in the market. In order to satisfy the
risk appetites of a variety of investors, the risk is
tranched into a number of bonds, each with different
risk profiles or occurrence probabilities (correspond-
ing to layers).
The most important structuring aspect of catastrophe

bond issues is doubtless the choice of loss trigger
on which payment is based. Parametric triggers are
based on the cause of loss, such as wind speeds
recorded in a windstorm. An index has been set up
for windstorm Europe, based on recorded wind
speeds exceeding a threshold value (e.g. 27 m/s).
In western Europe alone (the United Kingdom,
France, the Netherlands, Belgium, Germany), data
is available from some 600 weather stations. The
recorded wind speeds are interpolated into CRESTA
zones, weighted by loss exposure, so that insured
losses can be estimated.
Market loss triggers are based on reported insured

losses. The only market loss trigger currently in use
is the PCS Index for the USA, now the market stand-
With the current securitisation model, the insur- ard for hurricane catastrophe bonds.
ance company, as sponsor of the transaction, con-
cludes a reinsurance treaty with a reinsurer. The Modelled loss triggers simulate losses to a notional
reinsurer transfers the risk to a special purpose portfolio. Indemnity triggers are based on the actual
vehicle by means of a retrocession agreement. financial losses sustained by the sponsor when a
The special purpose company issues a bond to loss occurs. However, this alternative, which is
cover any liabilities that may arise under the retro- tailored to the sponsor’s need to cover the original
cession agreement. A collateral trust invests the loss, is less popular with investors, parametric and
corresponding proceeds in bonds with a top credit market loss triggers being considered more trans-
rating. The funds are managed by a trustee, whose parent and clear-cut.
duty it is to ensure that they are properly invested.
The assets of the collateral trust function as secur Insurance derivatives have to be based on a syn-
ity for the special purpose company’s contingent thetic trigger (parametric or market loss).
liabilities, first-class backing for the policyholder’s
cover. A total return swap is purchased to ensure In the case of swaps, the cedant pays the investor
that returns on investments made by the collateral a fixed-rate premium and receives a floating-rate
trust bear interest at LIBOR or EURIBOR. The rein- payment in return if a defined loss event occurs.
surance and retrocession premiums are passed on
to the investors in the form of a spread above LIBOR Transferring risk to the capital markets offers
or EURIBOR, this being the real incentive for invest- advantages to sponsors (alternative forms of
ing in the bond. However, risk can be transferred by capacity in markets where it is becoming more
means of a financial contract as well as a reinsurance scarce) and investors (uncorrelated investment
and retrocession agreement. class with attractive earnings).
Following Katrina, the spread on securitised catas- Munich Re itself uses catastrophe bonds to hedge
trophe risks, particularly for peak scenarios such against weather-related natural catastrophes (wind-
as hurricane USA, increased substantially after a storm Europe, hurricane USA).
period during which prices had been steadily falling.
Thus, the capital markets and the traditional rein- Munich Re’s Risk Trading Unit advises and assists
surance markets were not dissociated, prices in clients on the transfer of risks to the capital markets,
both having kept pace with each other. from structuring to placement. Key factors in the
successful handling of our clients’ transactions are
Although transactions were initially confined mainly Munich Re’s balance sheet and its risk-bearing
to top-layer risks, it is now possible to place risks capacity.
with lower return periods (25–30 years).

Underwriting aspects Risk can be transferred on the basis of accumulated
values throughout the relevant period or by count-
ing the days which fulfil a certain criterion, such as
a maximum temperature of 31°C. The predefined
payment is either made in full once the trigger value
has been reached, or in stages that correspond to
each additional day on which the maximum tem-
perature is 31°C, for example.
Munich Re offers both insurance and derivative

solutions tailored to the needs of the individual
company. The key difference between the two
solutions is that derivatives have to be valued at
a specific date and shown in the balance sheet,
whereas insurance premiums can be written off
as an expense. Furthermore, the need to have an
insurable interest does not apply in the case of
derivatives, which are purely financial transactions.
Thus, the client may receive a payment even if no
loss has been sustained. In both cases, the clients
bear the basis risk that, even though they may
suffer a loss, no compensation will be paid if the
weather cover is not triggered. Therefore, it is very
much in the client’s interests that an analysis be
performed of the precise extent to which its business
Weather insurance is affected by the weather, and that the index and
trigger selected match its exposure.
The energy sector is very much at the mercy of the

weather, with average energy consumption being
Cover against weather-related natural catastrophes reduced both by falling demand for heating in
is also available in the form of weather insurance. a mild winter and for air-conditioning in a cool
summer. Fluctuations in demand caused by the
Over two thirds of the world’s economy is directly weather are a major volume risk and, unlike price
or indirectly dependent on atmospheric conditions. risks, cannot be covered on the energy exchanges.
Companies can protect themselves against the This is where standardised weather derivatives can
financial consequences of unfavourable weather help, since they are specifically designed to deal
conditions by purchasing weather insurance or with this type of exposure. They are based on tem-
weather derivatives based on parametric triggers. perature indices, referred to as heating degree days
These provide compensation for loss of revenue (HDD) for the winter period and cooling degree days
or additional costs. Risk awareness in general is (CDD) for the summer. The indices measure daily
increasing because of climate change and the deviations from a reference temperature of 65°F
growing importance companies attach to risk (approx. 18.3°C) throughout the season.
management. As a result, the number of products
offering protection against losses due to unex- The weather derivatives market has experienced
pected and exceptional weather conditions is massive growth throughout the past decade, mainly
steadily growing. in response to demand from utility companies.
Contracts are traded on the exchanges and over
Creativity knows almost no bounds when it comes the counter, either directly between the parties
to structuring weather covers, and a wide range involved or through a broker. A Pricewaterhouse-
of concepts is on offer. They may be based on Coopers survey commissioned by the Weather
temperature, precipitation (rain/snow), sunshine Risk Management Association found that over a
hours, wind or a combination of values recorded at million contracts, primarily relating to major US
independent, official weather stations, operated for conurbations, had been traded on the Chicago
the most part by public bodies such as Germany’s Mercantile Exchange in 2005/6. Apart from utility
Weather Service. The risk is analysed and mod- companies, banks, (re)insurance companies, and
elled using statistics collated over a period of hedge funds also trade on the market. Their object
twenty years or more. Thus, expected losses and ives vary from the desire to obtain direct cover for
volatility can be established and trends identified. their own exposure or achieve a wider geographical
spread, to the wish to take advantage of arbitrage
opportunities.

No need for event organisers
to get their feet wet (photo
shows the centre court at
the Steffi Graf Stadium in
Berlin). Weather insurance
or derivatives will shelter
them from the financial
consequences of adverse
climate conditions.
Utility companies are sensitive to the weather on It has, for some time now, been possible to insure
the production side as well as the consumer side. sports and music events not only against natural
For instance, shortages of water during periods catastrophes such as windstorm but also against
of drought are a problem for hydroelectric power adverse weather. Classical open-air concerts are
stations, and even nuclear power stations can be especially vulnerable, because the musical instru
forced to close down if there is a lack of coolant. ments must on no account be exposed to rain. If
If power grids are overloaded by constant use of persistent rain disrupts major tennis tournaments
air conditioners, this can result in supply shortages like the French Open, finals may have to be post
or even power cuts. By contrast, since photovoltaic poned instead of being played at lucrative, week
systems require adequate amounts of daily sun end peak periods. For this reason, organisers will
shine, the corresponding solutions could be based often opt for cancellation-of-events insurance
on global solar radiation indices. Weather insurance including adverse weather cover, which indemni
in this context generally covers investment projects fies additional costs or loss of revenue if precipita
and the loans granted to finance them. tion exceeds a certain number of millimetres.
Other branches of the economy that rely on the

weather are agriculture and tourism. Many ski
areas reported a sharp fall in turnover as a result of
the extremely mild 2006/7 winter. At the same time,
local authorities had cause to celebrate because
they saved money on snow clearance. Building
firms, which can face the problem of enforced
inactivity or even incur penalty payments during
harsh winters, also reaped the benefits. On the
other hand, ice cream and drinks manufacturers
and outdoor sectors such as beer gardens, leisure
parks and swimming pools, profit from a hot
summer. By contrast, sales of summer clothing
scarcely benefit from hot weather as people tend to
stay away from the shops when the temperature
soars, despite air-conditioning. The drought that
accompanies periods of hot weather can also
cause crop failures and increase the risk of wild
fires, whilst inland shipping may be hit by falling
water levels.

Summary
Climate change is no longer to be disputed. According to the latest findings,

natural events will be more extreme due to the resultant global warming – not
only in the Gulf of Mexico and on the east coast of the United States but here
in central Europe as well.
We face the prospect of heavier winter storms, more devastating floods, and
longer dry spells than ever before. The fact that the frequency of such scenarios
as winter storms is not increasing can be of little consolation compared with
the growing severity and frequency of local events like heavy precipitation,
thunderstorms and hail.
The insurance industry doubtless faces heavier loss burdens. At the same
time, demand for private and commercial insurance is expected to rise, with
utility and shipping companies insuring against the risk of low water levels
during hot spells, for instance, and sectors where turnover is especially prone
to seasonal weather conditions purchasing more weather derivatives. Although
now well established in the USA, this form of cover is rare in central Europe,
perhaps owing to the historical absence of extreme events.
Demand for natural hazard extensions will also grow in personal lines business,
as people become more aware of the risks of snow load and heavy precipitation
in many areas of central Europe.
Global warming constitutes both a risk and an opportunity for the insurance
industry. From either perspective, the challenges the industry faces are many
and varied, but not insurmountable provided the tried and tested principles
are respected: risk identification, risk assessment, adequate cover at an appro-
priate price. We are, however, less and less able to rely on historical events
and experience as a guide. We will have to make more use of scenarios to
simulate future developments, and models will be applied on a wider scale.
Complete transparency of individual risks will be absolutely essential and
geocoded risk data the norm. Underwriting controls will be necessary to avoid
local accumulations.
Policy terms and conditions and extensions will have to be crystal clear. The
more imprecise the terms and conditions and the more limited the loss experi-
ence, the greater the fluctuations in losses from extreme events.
Apart from the purely underwriting aspects, it is fundamentally important

that policyholders and insurers recognise their community of interests. This
means above all that policyholders regard natural hazard cover as a means
of protection against major financial loss, not a “money swap”.
The insurance industry has to ensure that people appreciate this fact in order
to prepare the ground for appropriate deductibles. Insurance companies will
have to promote and reward active risk management and loss prevention.
The authorities, too, have a part to play in this, by not granting construction
permits in high-flood-risk areas and by introducing more stringent building
codes.
Munich Re has the expertise and resources to assist clients with their insurance,
risk analysis and risk management concerns. We will be happy to advise you
on a range of risk transfer alternatives – from traditional reinsurance to catas-
trophe bonds and derivatives.

Geo services – Client services
CatLossEstimation Service: Insured market losses due to severe weather run into billions each year in
Europe. Winter storms and hailstorms can leave a trail of catastrophe and trig-
Using geocoding to visualise ger a flood of insurance claims. Munich Re’s CatLossEstimation Service pro-
losses motes proactive claims management by using modern geoinformation tech-
nology and address geocoding techniques to forecast losses. Insurers can
establish the potential impact of a windstorm or thunderstorm on their port
folios in less than 48 hours. The service also facilitates claims handling and
accumulation control.
Modern natural hazard loss management
Following a windstorm or hailstorm, the CatLossEstimation Service compares

portfolio and weather data by combining the storm input with the geocoded
risk details. Thus, insurers can estimate losses and potential accumulations
before the actual surge of claims notifications arrives. Moreover, having such
detailed information at their disposal at an early stage facilitates contacts with
policyholders, and hence claims management, in the immediate aftermath of
the event. Besides forecasting losses, the Adjuster Index Module incorporated
in the CatLossEstimation Service provides details of local loss amounts. Post-
code-based analyses enable cedants to optimise coordination of loss adjusters
and deploy them in the areas worst affected. The analyses are presented in the
form of charts and tables. The data include both risk location details and sums
insured, so that cedants can establish whether the risks affected are large or
small.
Beating the fraudsters
The service also helps to detect attempted fraud. Claims technicians can
quickly identify on a map whether a reported loss is well outside the storm
field, and decide if an invoice can be settled without further enquiries or if
adjusters should be appointed. The CatLossEstimation Service also produces
portfolio analyses, performing an additional quality control by highlighting
discrepancies in the portfolio. It can, for example, identify risks with incorrect
street names or postcodes or sums insured that exceed a certain limit.
CatLossEstimation: The technology behind the service
Initially, the cedant forwards precise details of all risk addresses in the port
folio to Munich Re for geocoding – i.e. determining the latitude and longitude
coordinates for each risk.
Use of a virtual project room, accessible via the client portal, facilitates com-
munications between the insurer and Munich Re. This facility guarantees
secure data-sharing and advises major changes by e-mail. Following a storm,
the storm field and the geocoded client portfolio are linked and both datasets
compared. In this way, the risks that are relevant for insurance and loss pur-
Capable of making a
big impact: hailstones poses, namely those affected by winds of a minimum Force 8 on the Beaufort
the size of golf balls Scale, can be filtered out. The extent to which a portfolio has been impacted
(Moses, New Mexico). can be determined from the wind speeds and sums insured. Evaluations are
available one to three days after a storm.
A few weeks after the event and further to processing of the claims notifica-
tions, the insurer advises the actual loss burden and affected risks. The Cat
LossEstimation Service links these data with the forecasts made previously
to establish the specific characteristics of the portfolio. Each new loss event
produces a more detailed analysis.

Geo services
MR NatCatSERVICE The service we offer
NatCatSERVICE is the central element of Munich Re’s Geo Risks Research.

Founded in 1974, it is now one of the most comprehensive natural catastrophe
databases in existence.
Each year, we analyse and document over 700 events. The database currently
has more than 25,000 entries. It contains data on the major catastrophes of the
last 2,000 years and on all post-1980 loss events.
Information on individual events is available on our online platform, NATHAN.

Up-to-date charts and analyses can be downloaded at www.munichre.com/
geo.
NATHAN The service we offer
NATHAN is an online platform which supplies comprehensive information

on natural hazards, historical catastrophes, and countries. Interactive maps
provide information on natural hazard situations anywhere in the world.
Key features:
– Interactive dialogue with Munich Re’s natural hazard maps
– Identification of 600,000 cities worldwide and their natural hazard exposures
– Identification of CRESTA zones
– Up-to-date catalogue of worldwide catastrophes, including information on
overall and insured losses
– Country profiles, with information on geography, economy, population and
insurance markets
– NATHAN is available in two versions. The internet version can be accessed
at www.munichre.com/nathan. Clients can access a more detailed version at
connect.munichre.com.
MRCatPML SERVICE The service we offer
Munich Re’s MRCatPML SERVICE prepares analyses of potential earthquake,

storm, and flood accumulation losses based on insurance companies’ risk
details (using the CRESTA system or on an address basis) broken down by
geographical location and risk category.
Key features:
– Natural catastrophe PML analyses
– Simulation of historical or hypothetical catastrophe scenarios
– Estimates of the impact of catastrophe scenarios on individual portfolios
– Probabilistic analyses and cartographic representations
– Analyses of earthquake, storm and flood risks

MRGlobalLocationFinder The service we offer
MRGlobalLocationFinder geocodes individual risk locations by address in

20 countries (Europe, USA) and by locality worldwide.
Key features:
– Automatic representation of the geographical coordinates of all (risk) loca-
tions in the portfolio
– Analysis of portfolio quality (identification and rectification of incorrect risk
addresses)
– Greater transparency, better risk management
– Enhanced risk-modelling and accumulation control
– Multi-location policy capability (identification of all individual risks)
– Secure data-sharing in Munich Re’s client portal (connect.munichre.com)
MRGAP SERVICE The service we offer
MRGAP SERVICE facilitates natural catastrophe risk assessment and identifies

exposure accumulations in clients’ property portfolios. GAP stands for Geo-
graphical Assessment of Portfolios.
Key features:
– Innovation: High-level transparency and visualisation for risk assessment
and accumulation support
– Worldwide evaluation of natural catastrophe hazard potential for regional
and global portfolios
– Portfolio identification and cartographic representation (based on maps or
satellite images) according to optional parameters (such as sum insured,
class of business, client)
– Support for proactive risk management (e.g. by identifying hot spots and
clusters) and highlighting of business potential
– Automatic identification of CRESTA zones (accumulation control)
– Secure data-sharing via Munich Re’s client portal (connect.munichre.com)
GEO consulting The service we offer
Thanks to its in-depth global experience, our multidisciplinary team can pro-
vide clients with first-class support in the introduction and implementation of
geoinformation technology (e.g. portfolio geocoding, application of geoinfor-
mation systems).
Key features:
– Access to a pool of expertise on a relatively new area of underwriting –
geoinformation
– Support for insurers in the planning and implementation of in-house solu-
tions
– Access to an international network of experts, service providers, and geo-
data providers
– Support with the setting up of specialised training courses (e.g. marine,
aquaculture)
– Expertise on issues in the field of airborne data, satellite data, and satellite
navigation (GPS, Galileo).

Appendix
Table 5 Beaufort Scale Beau- Designa- Average wind speed Example of the effects of wind inland
fort tion at a height of 10 m
In Europe, wind speeds are often Scale above ground
M/s Km/h
measured on the Beaufort Scale,
0 Calm 0–0.2 <1 Smoke rises vertically.
invented in 1806 by Sir Francis Beau-
1 Light air 0.3–1.5 1–5 Direction of wind shown by smoke drift.
fort (1774–1857), a rear-admiral in the 2 Light 1.6–3.3 6–11 Wind felt on face; leaves rustle; ordinary
Royal Navy. It calculates wind speeds breeze vanes moved by wind.
according to the effects produced. 3 Gentle 3.4–5.4 12–19 Leaves and small twigs in constant motion;
The scale ranges from 0 (calm) to 12 breeze wind extends light flags.
(hurricane force). 4 Moderate 5.5–7.9 20–28 Small branches are moved; dust and loose
breeze paper raised.
moderate
wind
5 Fresh 8.0–10.7 29–38 Small trees in leaf begin to sway;

breeze crested wavelets form on inland waters.
fresh wind
6 Strong 10.8–13.8 39–49 Large branches in motion; umbrellas used
breeze with difficulty; whistling heard in telegraph
wires.
7 Near gale 13.9–17.1 50–61 Effort needed to walk against the wind;
whole trees in motion.
8 Gale 17.2–20.7 62–74 Twigs break off trees; walking against the
wind is considerably impeded.
9 Strong 20.8–24.4 75–88 Branches break; slight structural damage
gale occurs (slates and chimney pots removed).
10 Storm 24.5–28.4 89–102 Trees break; considerable structural
damage.
11 Violent 28.5–32.6 103–117 Trees uprooted; widespread damage.
storm
12 Hurricane From 32.7 From 118 Devastation.
Table 6 Hail size chart and typical Diameter Comparison Damage

hailstone damage in cm
0.1–0.5 Ice pellets, not hail
0.5–2.0 Pea, hazelnut, marble Virtually no damage, slight damage to
plants.
2.0–3.0 One euro coin Panes in glasshouses, cloches broken;
vehicles, fruit and vegetables extensively
damaged.
3.0–4.0 Walnut, table tennis ball Car paintwork damaged, glasshouses
destroyed, felt or asbestos roofs pierced,
branches broken from trees, birds and
poultry killed.
4.0–6.0 Golf ball, billiard ball Damage to windows and glass roofs;
bodywork of cars and aircraft pitted.
6.0–8.0 Tennis ball Damage to roofing tiles.
Significant structural damage (façades,
metal cladding, window frames), risk of
serious injury.
8.0–11.0 Baseball, grapefruit Aircraft bodywork badly damaged; humans
and animals seriously endangered, paving
stones pitted, severe damage to forests.
> 11.0 Small melon, softball Risk of fatal injury to humans and animals,
damage to the fabric of buildings.

Table 7 Fujita and Torro Tornado Scales
Fujita Torro V in km/h Average damage Medium damage Losses

% (light) % (solid)
F0 T0 65–90 0.05 0.01 Loose light objects raised from the ground. Twigs snapped.
Trail visible through crops. Scaffolding may fall, tents and
marquees disturbed. Exposed roof tiles may be dislodged.
No damage to building structure.
T1 90–119 0.10 0.05 Garden furniture and heavy objects become airborne.
Wooden fences flattened. Slight damage to trees. Slight
damage to roof tiles and flashings. Minor damage to light
constructions, no structural damage.
F1 T2 119–151 0.25 0.10 Heavy objects become airborne, can become missiles. Light
caravans blown over. Tiled roofs, unsecured flat roofs
partially uncovered. Slight to medium damage to light
constructions; initial damage to structural elements of solid
constructions. Some branches broken, small trees uprooted.
T3 151–184 0.80 0.25 Bigger trees uprooted. Cars and caravans blown over.
Considerable damage to tiled and unsecured flat roofs.
Medium damage to light constructions; damage to
structural elements of solid constructions. Moving cars
pushed off the road.
F2 T4 184–220 3.0 0.80 Trees (free-standing and in forests) snapped. Mobile homes
demolished. Severe risk and damage due to airborne
objects. House roof timbers completely exposed. Severe
damage to light constructions, more damage to structural
parts of solid constructions, gable ends torn away.
T5 220–256 10.0 3.0 Severe damage to roofs and outbuildings. Severe damage to
light constructions; structural elements of solid constructions
more severely damaged. Buildings may collapse, particularly
agricultural constructions and warehouses. Cars become
airborne.
F3 T6 256–295 30.0 10.0 Light constructions destroyed to a major extent.
Severe damage to structural elements of solid construc-
tions. Buildings collapse. Heavy cars become airborne.
T7 295–335 90.0 30.0 Light constructions totally destroyed on wide scale and
severe damage to solid constructions. Many buildings
collapse. Noticeable debarking of trees by flying debris.
F4 T8 335–378 100 60.0 Severe damage to solid constructions. Widespread building
collapses, contents dispersed over a wide area. Vehicles
hurled great distances.
T9 378–421 100 80.0 Widespread total loss of solid constructions. Trains derailed.
Complete debarking of standing tree trunks.
F5 T10 421–468 100 90.0 Total loss of solid constructions on a massive scale. Total
debarking, uprooting of deep roots.
T11 468–515 100 95.0 Total loss of all solid constructions virtually without
exception. Total debarking. Uprooting of deeper roots.
The international standard for measuring tornadoes is the Fujita Scale, which
is based on maximum wind speeds. Since weather stations seldom survive
the passage of a tornado, intensity is normally estimated on the basis of the
extent of loss. This ranges from minor property damage to total loss. In Europe,
both the Torro Scale and the Fujita Scale are used. The Torro Scale has twice
as many stages (T0–T11). Different Torro intensities are allocated to the average
loss rates for light and solid constructions.

Authors
Hans-Dieter Absmaier Thomas Artmann Ernst Bedacht Werner Dechant

Head of Section, Marine Underwriting and Windstorm and Weather Senior Property
Facultative Business, Product-Line Manager, Risks Expert, Geo Risks Underwriter,
Divisional Unit: Germany Corporate Underwriting/ Research, Corporate Austria/Central and
Global Clients Underwriting/Global Clients Eastern Europe
Dr. Eberhard Faust Stéphanie Gier Sabine Gosch Tobias Grimm

Senior Climate Risks Expert, Underwriter, Underwriter, Weather and Climate Risks
Geo Risks Research, Enterprise Risks, Corporate Underwriting/ Expert, Geo Risks Research,
Corporate Underwriting/ Special and Financial Risks Global Clients Corporate Underwriting/
Global Clients Global Clients
Dr. Marcel Grandi Dr. Joachim Herbold Prof. Dr. Dr. Peter Höppe Benedicta Kramer
Consultant, Senior Underwriter, Head of Geo Risks Research, Underwriter,
Senior Manager – Agricultural Department, Corporate Underwriting/ Agricultural Risks,
Structuring, Corporate Underwriting/ Global Clients Corporate Underwriting/
Risk Trading Unit Global Clients Global Clients
Dr.-Ing. Wolfgang Kron Ernst Rauch Christian Sitterer Dr. Anselm Smolka
Senior Expert, Natural Head of Department, Head of Department, Head of Department,
Catastrophe Extreme Corporate Climate Centre Divisional Unit: Germany Risk Evaluation Natural
Scenarios, Geo Risks F&E Natural Hazards, Geo Perils, Geo Risks Research,
Research, Corporate Risks Research, Corporate Corporate Underwriting/
Underwriting/Global Clients Underwriting/Global Clients Global Clients

© 2008 Bibliography
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Diagrams, maps, tables

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Knowledge series Highs and lows

Weather risks in central Europe

Germany, Austria, Switzerland, Czech Republic,

Dr. Torsten Jeworrek

Munich Re Weather risks in central Europe 

Climate change in central Europe 6

Specific characteristics of the target markets 34

Geo services – Client services 51

 Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe 

The 2007 IPCC (Intergovernmental Panel on Climate Change) report confirms

In the light of these developments, it is necessary to carry out a new analysis

As a result of selective underwriting, insured losses from floods remain low in

 Munich Re Weather risks in central Europe

Munich Re uses catastrophe bonds to cover weather-related natural catastrophes

Munich Re Weather risks in central Europe 

The mean global temperature is constantly rising. It has increased by 0.74°C

Sir Nicholas Stern’s report on the “Economics of Climate Change”, published

It is also crucial that we finance steps to adapt to climate-change impacts that

 Munich Re Weather risks in central Europe

Torrential rain, floods

Munich Re Weather risks in central Europe 

Shrinking permafrost areas

Effects during Heatwaves

Fig. 2 Temperature change

Change in annual average temperature (°C)

Source: IPCC 4 10°W 0° 10°E 20°E 30°E 40°E

 Munich Re Weather risks in central Europe

– The Swiss observations show that European weather conditions conducive

West European trough conditions

– Repeated bouts of extremely severe precipitation along the Mediterranean coast

Fig. 3 Change in precipitation (%)

Winter: December, January, February Summer: June, July, August

70°N 70°N 50%

Munich Re Weather risks in central Europe 

A single winter storm event can produce insured

12 Munich Re Weather risks in central Europe

Winter storms – Single-cell storms last, as a rule, only 30–60 min-

Fig. 4 Tracks of historical European

Although most storms cross

0 150 300 Kilometres Marseilles

Munich Re Weather risks in central Europe 13

14 Munich Re Weather risks in central Europe

Most of the tornadoes are of low to medium inten-

Table 1 Observations and estimated

Country Observations Estimate Tornadoes of

Source: Dotzek, N., 2003: An updated estimate of tornado

Munich Re Weather risks in central Europe 15

Country Insured market Insured market

Insured market losses

Loss potential – Structural changes (extensions, special features,

Fig. 6 Distribution of 1980–2006 losses by event type:

Overall losses: €45bn* Insured losses €20bn*

16 Munich Re Weather risks in central Europe

Table 3 Selection of major windstorm catastrophes in central

Year Event Country Overall losses €m* Insured losses €m*

Source: Munich Re’s NatCatSERVICE

Munich Re Weather risks in central Europe 17

Meteorological development Fig. 7 Overall European windstorm losses and

Overall losses per month (€bn)

* 1970–2006 at 2006 values; 2007 at original values.

18 Munich Re Weather risks in central Europe

Comparison of Kyrill’s wind field with Fig. 9 Kyrill’s wind field

On the basis of an analysis of wind

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

Munich Re Weather risks in central Europe

1 irective of the European Parliament and of the Council on