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Knowledge series

Germany, Austria, Switzerland, Czech Republic,

Slovak Republic, Slovenia, northern Italy

Highs and lowsWeather risks in central Europe

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The international headlines o the past ew yearshave been dominated by extreme hurricane eventsalong the US coastline. Katrina was certainly themost costly loss on record, with dramatic conse-

quences in human terms, but Europe has also beenhit recently by an unusually large number o weather-

related catastrophes and disturbing new develop-ments. To name but a ew examples: the Elbe ood

o 2002, Germanys most costly natural catastrophe;

the hot summer o 2003, a 450-year event, in whichmore than 70,000 died in Europe due to the heat;the August 2005 oods in the Alps, Switzerlandsmost expensive natural catastrophe on record;Hurricane Vince, which developed o Madeirabeore heading towards Europe; Winter Storm Kyrill,Germanys most expensive and Europes secondmost expensive winter storm, involving major

losses across much o central Europe. In addition,eastern Europe repeatedly suered prolonged,widespread oods. Analyses undertaken using ourNatCatSERVICE database clearly show that thenumber o weather-related natural catastrophes inEurope has more than doubled since 1980. Thereis increasing evidence that this trend is alreadydriven by climate change.

It is time or a re-analysis o Europes meteorological

risk situation. This publication gives you the most

recent assessments o all the relevant weather risks

in central Europe and an outlook on the changes

we can expect in the coming years. The spectrumranges rom storms and oods to the eects oextreme temperatures. One chapter, devotedto the insurance-related aspects o weather risks,

summarises current regulations in the dierent

markets, providing a handy reerence guide as tohow neighbouring markets are dealing with therisk situation.

The central message is that, as a result o climatechange, past loss experience is no longer a suitable

yardstick or predicting uture losses. Instead,the consequences o global warming, which vary

rom region to region, must be anticipated now,and reected in pricing and risk management. Wetrust that you will fnd the inormation containedin this publication to be both o practical use andinormative.

Dr. Torsten JeworrekMember o the Board o ManagementCorporate Underwriting/Global Clients

1Munich Re Weather risks in central Europe

Editorial

Dear Reader,

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4/602 Munich Re Weather risks in central Europe

Editorial 1

Executive summary 4

Climate change in central Europe 6

The risks 10

Windstorm risks 12Flood risks 20Extreme temperatures, snow accumulationand risks in mountainous regions 26

Underwriting aspects 32

Specifc characteristics o the target markets 34Agricultural insurance 42Motor accidental damage (AD) insurance 44Marine insurance 45Hedging weather risks via the capital markets 46Weather insurance 48

Summary 50

Geo services Client services 51

Appendix 54

Contents

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5/603Munich Re Weather risks in central Europe

Risks, p. 10

Severe storms will grow more requent andmore intense due to global warming. The risksituation must be re-evaluated to ensure thegrowing losses can be insured in the uture.

Underwriting aspects, p. 32

Increasing concentration o values in exposed

regions is a major loss driver. The insuranceindustry aces the task o devising productsto address new challenges.

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Scientic aspects

The 2007 IPCC (Intergovernmental Panel on Climate Change) report confrmswhat 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 tracegases released into the atmosphere by human activities. The mean globaltemperature has increased by 0.74C in the past 100 years and, in Europe, the

mean temperature has risen by as much as 0.95C. The IPCC also confrms ouranalyses indicating that climate change is already causing a greater numberand higher intensity o weather extremes. Individual events such as easternGermanys major oods in 2002, the record summer temperatures in 2003across much o Europe, ooding in the Alpine region in 2005, and WinterStorm Kyrill in January 2007 may not in themselves be directly ascribable toclimate change. However, the growing requencies and intensities o eventstend to point to such an inuence.

In the light o these developments, it is necessary to carry out a new analysiso the risk situation in Europe arising out o weather-related hazards, such asexposure to winter storms, which will increase. A single event can lead toinsured losses o over 50bn. However, events on a local scale should not be

underestimated either. Hailstorm scenarios can cause billions in insuredlosses in major cities. Furthermore, the vulnerability o insured property isincreasing due to structural changes, the use o new materials, and extensiono the cover.

As a result o selective underwriting, insured losses rom oods remain low incentral Europe, but the loss potential is growing because the incidence o heavyprecipitation is rising, exposed areas are being developed, and concentrationso values in the areas at risk are increasing. Scenarios involving more than one

country are likely to produce losses o several billion euros.

Executive summary

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Despite global warming, extreme winters like that o 2005/2006 remain apossibility. Heavy snowall and prolonged cold spells during which the snowaccumulates could cause major losses as in Austria in 2006, when the insuredmarket loss came to a substantial 300m. This is due to the act that, in Austria,

storm perils covered under household policies include snow load losses,resulting in market penetration o some 90%. By contrast, in Germany ewerthan 10% o homeowners have an extended natural hazards policy under whichsnow load is covered.

Insurance aspects

Catastrophe losses have vastly increased or insurers in recent decades, fveout o six natural catastrophes being triggered by weather extremes. MunichRe considers deductibles an eective means by which insurers can managethe risks, since the burden is more widely shared. Sublimits o up to 50% o the

sum insured, on the other hand, are less efcient because, across the portolioas a whole, they are much higher than the probable maximum loss Munich Re

expects or natural hazards. However, sublimits can be useul when applied toindividual risks.

The market review (see pp. 3441) provides a comparison o the dierencesbetween and special aspects o the various markets, so that we can learn andbeneft rom one another. Hail and storm insurance penetration in the centralEuropean countries reviewed is 80100%, but the fgure is generally much

lower or ood risks. This is because the storm and hail perils are oten coveredunder the fre policy. Market penetration in Switzerland, where the insuranceo natural hazard risks (except earthquake) is normally obligatory, is virtually100%. In Austria, unlike the other countries analysed, the state has set upan emergency und or exceptional natural hazard events, fnanced out otax revenues. However, there is no legal entitlement to compensation.

State help is primarily used to deal with ood risks and reduced agriculturalyields. Reduced yields have increased insurers loss ratios considerably insome years, resulting in higher premiums or armers. In central Europe, coverin Austria is among the most comprehensive. In addition to hail, policies alsocover rost, windstorm, ood, drought, and prolonged rainall at harvest time,premiums being subsidised by the state to the tune o 50%. The provision o

blanket, state-subsidised multi-peril crop insurance necessitates a risk partner-ship between the agricultural sector, the insurance industry and the state.

Alternative risk transer methods are assuming greater importance, given thegrowing loss potential. The securitisation o catastrophe risks by the issue ocatastrophe bonds on the capital markets has soared since Hurricane Katrina.In 2006, around US$ 5bn worth o catastrophe risk bonds were issued, twiceas much as in 2005. In all, catastrophe bonds currently amount to aroundUS$15bn. Experts believe that, in the medium term, 20% o catastrophe riskcapacity will be placed on the capital markets. In addition, catastrophe risks aretraded using insurance derivatives. Thus, companies can protect themselvesin the short term against the fnancial consequences o exceptional weatheractors. It is now also possible to place risks with lower return periods (2530

years), ollowing 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 oers both insurance and derivativesolutions tailored to the situation o the individual company. Munich Res RiskTrading Unit provides support and advice or clients on the transer o risks tothe capital markets.

Weather risks incentral Europe

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The mean global temperature is constantly rising. It has increased by 0.74Cin the last 100 years and by no less than 0.13C per decade in the last 50 years double the rate or the 100-year period as a whole. The rate o increasehas been even more pronounced in Europe, with a rise o 0.95C in the last100 years, and as much as 1.0C in Germany, 1.1C in Austria and 1.4C inSwitzerland. The rise in temperature has been even more marked in the lastew decades (see Fig. 1).

Munich Re was one o the frst companies in the fnance sector to draw attention

to the problem, pointing out in a 1973 publication on ooding that the growing

losses might be due to human-induced climate change. The 2007 IPCC (Inter-governmental Panel on Climate Change) report confrms the statements andwarnings we have issued over the last three decades: it is more than 90%probable that climate-changing trace gases released into the atmosphere byhuman activity are the primary cause o the global increase in temperature.

Sir Nicholas Sterns report on the Economics o Climate Change, publishedin October 2006, addressed the fnancial impact o climate change. It predicteda reduction in annual global growth of at least 5%, or US$ 2,200bn, by the

middle o this century. The Stern Review orecasts that the costs will be limited

to 1% o annual global gross domestic product (US$ 445bn) provided we takecorresponding action. Such action would enable us to remain below the critical

dividing line o a 2C increase in global average temperatures compared with

pre-industrial levels. This objective will only be achieved i CO2eq concentrations

can be stabilised at 445535 ppm by 2050. Some increase is inevitable due togrowing emissions rom emerging countries such as China and India.

It is also crucial that we fnance steps to adapt to climate-change impacts thatcan no longer be prevented. The insurance industry has a key role to play in thisby providing solutions to deal with the fnancial losses.

Climate change in central Europe

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Winter storms

The number o intense low-pressure systems orming over the Atlantic andthe proportion o westerly weather patterns rose steeply in the period romthe 1970s until around 1990.

Many climate models indicate an increase in severe storms by the end othe 21st century, despite a all in winter low-pressure systems over the NorthAtlantic. As a result, Europes overall exposure to winter storms will rise.

Models show greater exposure to wind, aecting in particular a corridorextending rom the UK to central Europe, together with northern France, theBenelux States, Denmark and northern Germany.

Studies based on a number o climate models project that Germanys annualloss ratios or winter storm will increase by an amount ranging rom 20% to

more than 100% between the reerence period 19601990 and the scenarioperiod 20702100.

Torrential rain, foods

Increased westerly air ows during the winter hal-year have also resulted ina 2030% rise in precipitation over western and southern Germany in recentdecades, oten bringing torrential rain and oods.

A climate model analysis by the Max Planck Institute or Meteorology inHamburg projects an increase in winter precipitation o some 1020% between

the 19611990 and 20712100 averages or Germany as a whole, and as

much as 30% on the North Sea coast, in Schleswig-Holstein and in the CentralGerman Uplands.

Switzerland has experienced a ar higher number o intense precipitation days(at least 70mm over a minimum 500 km2 surace area) on the northern edgeand in the interior region o the Alps.

Winter precipitation is projected to increase by some 1020% in the Swissplateau region, southern Switzerland, many parts o Upper and LowerAustria, Burgenland, Styria and Carinthia, most o the Czech Republic,parts o the Slovak Republic and in the Alpine regions o northern Italy.

Fig. 1 Observed annual, winter and summer

temperature deviations

Eects during thewinter hal-year

Temperature change (C) relative to average temperature in the period 19611990

Year

1.0

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

There has been a particularly steep rise inaverage temperatures in Europe since 1970.Source: CRU, 2003; Jones and Moberg, 2003

Year

WinterSummer

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Climate change in central Europe Warmer winters

By the end o the 21st century, surace temperatures in winter across northern

Germany will be 34C higher than in 19611990. Temperatures in southern Germany, Switzerland, Austria, the Czech Republic,

the Slovak Republic, Hungary and northern Italy will increase by more than4C.

The intensity and requency o heavy winter precipitation will rise substantially,

and it will all more oten as rain than snow. Flood exposure will increase. The 2C rise in regional temperatures already predicted or the coming decades

will result in a 40% decrease in Alpine winter sports areas with virtually

guaranteed snow. I temperatures increase by 4C, only 30% o this alreadyreduced area will be let.

Shrinking permarost areas

The high-lying permarost areas are receding and the increase in reeze-thawcycles is loosening rock and detritus, which could cause more severe rock allsand avalanches.

Higher winter precipitation in the orm o rain will soten the soil, resulting inmore requent landslides.

Heatwaves

In the course o the 21st century, temperatures will continue to increase duringthe summer hal-year: by 2.53.5C in northern Germany, compared withthe 19611990 average, and more than 3.5C in southern Germany, the south-

west Czech Republic, Austria, Switzerland, northern Italy and Slovenia.Many places will experience more heatwaves.

Scenarios or Upper Austria indicate heat periods (temperatures remain ator above approximately 30C or a minimum o 20 days) every two years onaverage, compared with every 20 at present. There will also be signifcantlymore dry periods like heat periods, oten associated with high-pressureconditions in Upper Austria, Burgenland and Styria.

According to the results o climate research, Switzerland, the Czech Republic,

the Slovak Republic, Hungary, northern Italy and Slovenia can also expectmore periods o heat and drought.

Eects during

the summer hal-year

Fig. 2 Temperature change

between 19801999 and 20802099

70N

60N

50N

40N

30N

10W 0 10E 20E 30E 40E

Change in annual average temperature (C)

10C 7 5 4 3.5 3 2.5 2 1.5 1 0.5

00.51

Comparison o changes in Europeantemperatures and precipitation during theperiods 19801999 and 20802099.

Let: Change in annual average temperature

(C). Right: Percentage change in precipita-tion amount (subdivided into winter andsummer).

Source: IPCC 4

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Precipitation

Total precipitation in the summer hal-year will decrease, but some eventscould be more intense, so that rainall will be distributed over a smallernumber o occurrences.

One climate model shows that average JulySeptember precipitation will besignifcantly less than in the period 19611990, the reduction being as muchas 2030% in parts o Austria, northern Italy, the Czech Republic, Switzerlandand the Slovak Republic.

Conversely, 1% heaviest fve-day summer precipitation will increase in partso northern Italy and northern Switzerland and along a band comprising

northern Austria and many parts o the Czech Republic, Poland and easternGermany.

Models indicate that a warmer climate could mean ewer low-pressure rainsystems orming in the northern Mediterranean basin due to central Europeantrough conditions. However, those precipitation events could become moreintense.

Thunderstorms

The tendency towards thunderstorm ormation, with the risk o hail, stronggusts, tornadoes, ash oods and lightening, will increase to a varyingextent, depending on the region. This trend has been confrmed 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 conduciveto thunderstorms also became more requent in the course o the 20th century.

Consequently, local increases o this sort are also probable or other regions

o central Europe, although difcult to substantiate at the present time. Climatemodels are still too approximate to indicate such eects in the projections. Inthe areas o northern Italy, Slovenia and southern Austria aected by moist air

masses rom the Adriatic, people will have to be prepared to deal with moresevere thunderstorms bringing hail, heavy precipitation and strong gusts.

West European trough conditions

Repeated bouts o extremely severe precipitation along the Mediterranean coastrom southeast Spain to Italy and Slovenia cause oods between September

and November. Torrential rain events in late summer and autumn are expected

to become more requent and intense in the Mediterranean countries.

The ollowing chapters explain the scientifc basis underlying the main perilsthat aect central Europe windstorm, ood and extreme temperatures. Inaddition, the specifc underwriting characteristics o the relevant countries aresummarised.

Fig. 3 Change in precipitation (%)

between 19801999 and 20802099

70N

60N

50N

40N

30N

10W 0 10E 20E 30E 40E

Winter: December, January, February

70N

60N

50N

40N

30N

10W 0 10E 20E 30E 40E

Summer: June, July, August

50%

30

20

15

10

5

0

5

10

15

2030

50

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The risksExperts paint a gloomy picture: notonly will the weather be more extreme,it will also be extremely expensiveunless we act now. Since risks can be

insured only i they are measurable,it is imperative that we analyse geo-scentifc events and the processesinvolved and understand them.

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The cold ront o a low-pressure systemlooms, bringing with it a bank o dark cloud.The scene near Mnchberg (Mrkisch-Oderland) in Brandenburg on 26 June 2007.

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Windstorm risks

A single winter storm event can produce insuredlosses o over 50bn.

Well covered: marketpenetration o storm andhail insurance in centralEurope is between 80%and 100%.

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Scientifc aspects

There are two types o windstorm in central Europe

that have high accumulation loss potential or theinsurance industry: winter storms and local severeweather events (summer storms and tornadoes).Winter storms meteorologically defned as extra-tropical occur only rom late autumn (October) tospring (April). A single winter storm event can cover

an area extending rom the north o the United King-

dom to south o the Alps and rom the Atlantic intothe heart o eastern Europe. Due to the geographical

scale o this type o storm, individual losses canrun into millions, and the insurance industry canace losses o over 50bn.

Local severe weather events, on the other hand,occur year-round, but are most requent in summer.

Although limited in area, the complex nature osuch events (lightning, torrential rain, hail, down-bursts and tornadoes) can mean accumulatedinsured losses o the order o several billion euros.

Winter storms

In Fig. 4 (illustrating tracks o historical windstorms

across Europe), the unbroken lines show the coursetaken by the centre o the relevant low-pressuresystem. However, the areas aected can only beidentifed by means o a wind feld showing, orexample, the geographical area aected by peak-gustwind speeds. This is illustrated by a wind feldanalysis o Winter Storm Kyrill (2007) perormed by

Munich Res Geo Risks Research experts (Fig. 9,page 19).

Insurers require such inormation to be able toestimate the resulting losses. Using simulationtechniques, wind felds can be superimposed onto

the geographical distribution o an insurance port-olio. The estimated loss share per individual riskcan be determined on the basis o the empiricalrelationship between the relative extent o loss(or ratio o loss to new replacement value or suminsured) and the modelled windstorm speed. Theprojected accumulation loss resulting rom an eventcan then be calculated by adding up the individuallosses throughout the entire winter storm loss area(see also the section on loss potential, page 16).

Local severe weather events: Thunderstorms and

associated hail and tornadoes

A thunderstorm consists o a towering cloud inwhich there are powerul updraughts and down-draughts. It brings storm-orce and hurricane-orcegusts, lightening and precipitation. Thunderstormsare classifed according to their dimensions andthe way in which they orm.

Single-cell storms last, as a rule, only 3060 min-utes. They rarely produce severe weather events.A typical example would be an isolated summerthunderstorm.

Severe thunderstorms that are grouped togetherare reerred to as multi-cell storms. Such complexeslast considerably longer than their single-cellcounterparts. Multi-cell storms are ound eitheras a cluster or as a line along a cold ront.

Vienna

Oslo

Prague

Paris

Leeds

Dijon Zurich

ZagrebVerona

Nantes

London

Krakow

Geneva

Genoa

Dublin

Berlin

Bergen

Rostock

Munich

Belfast

Hanover

Gothenburg

Budapest

Bordeaux

Aberdeen

Warsaw

Trondheim

Stockholm

Marseilles

Edinburgh

Brussels

Amsterdam

Luxembourg

0 3001 50 K il om et re s

Fig. 4 Tracks o historical European

windstorms since 1967

Although most storms cross

the North Sea, causinglosses in northern parts

ocentral Europe, theyoccasionally ollow a more

southerly track, so thatareas o southern andsoutheast central Europeare also aected. This wasthe case, or instance, withLothar and Martin in 1999,and Wiebke in 1990.

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Tornadoes Limited in area but highly destructiveTornadoes (on land) and waterspouts (over water)are large vortices o air that rotate about a verticalaxis. They normally extend rom the edge o astorm cloud to ground level. According to AlredWegeners 1917 defnition still accepted asauthoritative they are ully or partially visible andhave exceptionally high destructive potential. Theterms whirlwind and tornado are used synonym-ously. There is no dierence between tornadoes inNorth America, Europe and other regions o theworld with regard to physical nature and severity

only in terms o occurrence requency.

The ground-level diameter o tornadoes can varyrom some tens or hundreds o metres to as muchas 12 km in a number o observed instances. Thisbroad range can also include multiple vortex tor-nadoes, in which two or more vortices rotate abouta common centre. Tornadoes can last anything roma ew minutes to an hour. The translational speed isnormally 50100 km/h. Wind speeds inside a tornadocan be as high as 500 km/h. The internationalstandard used to measure tornadoes is the six-category Fujita Scale, which is based on maximum

wind speeds. The 12-category Torro Scale is alsoused in Europe. Since weather stations seldomsurvive the passage o a tornado, intensity is nor-mally estimated on the basis o the extent o loss:rom minor property damage to total destruction.

Tornado losses are mainly caused by wind pres-sure and at higher wind speeds ying debris.Buildings may also implode due to a sudden dropin the pressure within the tornado, particularly ithe aade is made o sealed glass panels.

Supercells are storms in which wind speedincreases and wind direction varies with heightso strongly that a rotating updraught is produced

that lasts or at least 1020 minutes (meso-cyclone). Supercells are much larger and moreorganised than normal single cells. They lastlonger and bring heavy precipitation, beingaccompanied in 30% o cases by extremeweather phenomena such as hail, downburstsor tornadoes.

Hail: High accumulation loss potential

Hail, a by-product o severe thunderstorms, is omajor signifcance to the insurance industry. Haildesignates precipitation in the orm o grain-sizelumps o ice o at least 5 mm diameter, smaller par-ticles being reerred to as snow pellets. The largestrecorded hailstone was ound in Nebraska, USA,on 22 June 2003. It had a diameter o 17.8 cm and acircumerence o 47.6 cm (sotball size).

The terminal velocity o hailstones increases inproportion to the square root o their diameter.Thus, a 1-cm hailstone impacts at a speed oaround 50 km/h, compared with 170 km/h in the

case o a 14-cm specimen. Hailstones o this sizecan have atal consequences or humans and ani-mals. The vertical and, in particular, horizontalspeed can increase i the hailstorm is accompaniedby storm-orce gusts, and this results in muchgreater damage to vertical suraces such as wallsand windows.

Tornado in Saxony-Anhalton 23 June 2004. The villageo Micheln was hit particu-larly hard. Six people wereinjured and 275 housesdamaged.

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The risks

Tornado requencies in central EuropeSystematic recordings can only be obtained withthe aid o a high-resolution weather radar network,tornadoes being o relatively limited dimensions.Europe has only had such networks since the 1980sand 1990s, so that observations o weaker torna-does have increased substantially in the last tenyears. On the other hand, no clear trend hasemerged with regard to severe events. In Europe,some 170 tornado observations are recorded eachyear, in addition to around 160 waterspouts (torna-does that orm over water and do not make land-

all). Scientists believe that the actual fgures orEurope are closer to 300 tornadoes and 400 water-spouts per year.

Most o the tornadoes are o low to medium inten-sity. However, in Germany or example, two F5 tor-nadoes have been documented since 1769 andeight F4 tornadoes since 1891 (see tornado scale,Table 7, p. 55). Other F4 and F5 category tornadoeshave been recorded in northern France, the Bene-lux States and northern Italy. Tornadoes appear tooccur more requently in specifc regions o centralEurope, just as the incidence is higher in Tornado

Alley in Americas Midwest.

Linz

Graz

Prague

Zurich

MilanGeneva

Berlin

Rostock

Munich

Hamburg

Nuremberg

Stuttgart

Frankfurt

Dsseldorf

Average annual number otornadoes per 10,000 km2between 1995 and 2006.This shows that windstorms

o this type tend to be

concentrated primarilyon central Europe. (Datasource: European SevereWeather Database)

Fig. 5 Tornado events in Europe 19952006

Occurrences per yearper 10,000 km2

000.3

0.30.60.60.90.91.31.31.6

Tornado event

Country Observations Estimate Tornadoes of

10,000 km

Germany 10 30 0.84Austria 3 5 0.60Switzerland 2 3 0.73Northern Italy 15 15 0.50Czech Republic 7 10 1.27

Slovenia 1 1 0.49Slovak Republic 1 4 0.82Florida (USA) 3.60Oklahoma (USA) 3.20

Table 1 Observations and estimated

tornadoes per year

Source: Dotzek, N., 2003: An updated estimate o tornadooccurrence in Europe. (Atmos. Res. 6768, 153161)

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The risks

Structural changes (extensions, special eatures,maintenance situation in respect o roos andwindows)

New construction materials (metal, glass andplastic aades, insulation)

Species, age, height and condition o trees in thevicinity o the buildings

Broader covers (e.g. inclusion o damage toences and garden installations, and o the costo removing debris)

Claims settlement practices in a new competitiveenvironment

Loss susceptibility is not constant but a actorwhich can change signifcantly over a period otime. Risk assessments (accumulation studies,minimum required premium rate analyses) there-

ore have to be adjusted accordingly.

Loss potential

Loss susceptibility

Thanks to the generally solid construction techniques

practised in central Europe, structural damage

tends to be the exception, even with high wind

speeds. The same applies to the eects o lightning

and hailstorms. Damage is mainly external, i.e.roos, windows and installations afxed to thebuildings exterior.

According to fndings in countries in central Europeor which detailed inormation on major loss eventsis available, insured properties have tended to beincreasingly prone to windstorm and severe weatherdamage in recent years (ratio o loss to sum insured).This is in part due to:

Fig. 6 Distribution o 19802006 losses by event type:

Winter storm, hail, severe weather/tornado/local storm

Winter stormHailSevere weather events/tornadoes/local storms

* At 2006 values.

Overall losses: 45bn* Insured losses 20bn*

56% 64%

24% 12%

20% 24%

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 < 0.5Slovak Republic < 0.2 < 0.3Slovenia < 0.2 < 0.3

Table 2 Insured market losses

Insured market lossescaused by winter storms orhail in central Europe witha 250-year return period.

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Year Event Country Overall losses m* Insured losses m*

1990 2526.1.1990 Winter Storm Daria Germany 1,000 500 34.2.1990 Winter Storm Herta Germany 500 250 2527.2.1990 Winter Storm Vivian Germany 1,000 500

Austria 100 60Switzerland 70 50

28.2.1.3.1990 Winter Storm Wiebke Germany 1,000 500Austria 100 60Switzerland 70 50Italy 15 No details

1992 21.7.1992 Severe weather event Switzerland 85 40 28.8.1992 Hail Germany 100 851994 4.7.1994 Hail Germany 420 320 2629.1.1994 Winter Storm Lore Germany 240 200

Austria 5 No detailsSwitzerland 10 No details

1995 2123.7.1995 Windstorm Emily Germany 400 3001999 3 4.12.1999 Winter Storm Anatol Germany 150 100 26.12.1999 Winter Storm Lothar Germany 1,600 650

Switzerland 1,500 800Northern Italy 500 No details

2000 3 4.7.2000 Hail Austria 160 902001 67.7.2001 Severe weather event, tornado Czech Republic 17 6 78.7.2001 Severe weather event, tornado Northern Italy 200 352002 2627.2.2002 Winter Storm Anna Germany 570 340

24.6.2002 Hail Switzerland 220 170 5.8.2002 Hail Northern Italy 80 55 2630.10.2002 Winter Storm Jeanett Germany 1,700 1,200

Czech Republic 20 10 1617.11.2002 Severe weather event, windstorm Austria 100 70 2528.11.2002 Severe weather event, landslides Switzerland 190 502003 23.1.2003 Winter Storm Calvann Germany 250 80 2931.8.2003 Severe weather event, landslides Northern Italy 400 102004 9.8.2004 Hail Slovenia 15 No details 20.11.2004 Winter storm Slovak Republic 190 102005 79.1.2005 Winter Storm Erwin Germany 210 1502006 1617.6.2006 Hail, severe weather event Austria 80 60 2829.6.2006 Hail, severe weather event Germany 380 2302007 1820.1.2007 Winter Storm Kyrill Germany 3,500 2,400

Austria 500 200

Czech Republic 50 30 2021.6.2007 Severe weather event Switzerland 150 75

* Original values, not adjusted or ination; converted into at month-end/year-end exchange rates.

Source: Munich Res NatCatSERVICE

Table 3 Selection o major windstorm catastrophes in central

Europe since 1990*

Losses by storm type

Fig. 6 shows a breakdown o losses by storm type.Over hal o overall losses and nearly two thirds oinsured losses were caused by winter storms.

Loss potential

Table 2 shows potential insured market losses orthe given storm perils based on a 250-year returnperiod. Market penetration o storm and severe

weather insurance varies widely in central Europe(see also pp. 3441). Overall damage could thus begreater by up to a actor o two in some cases.

It is difcult to estimate tornado loss potential dueto the extreme (spatial) inrequency o such events.The most violent to date was at Porzheim, Germany,in 1968. The original loss fgure was 45 million,which would be approximately 270m at 2006

values. In theory, they could strike any o centralEuropes major conurbations and the loss potentialwould be correspondingly higher.

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Meteorological development

Winter Storm Kyrill marked the climaxo an above-average 2006/2007winter storm season in Europe thatincluded Britta, Karla, Lotte and Franz.The low-pressure system which gaverise to Kyrill ormed in the centralAtlantic on 17 January 2007. Withmaximum gusts o 135 km/h, Kyrillswept across England and the NorthSea beore heading or southernDenmark. On the aternoon andevening o 18 January, peak gustsexceeding 100 km/h were observed

over wide areas o the Netherlands,Belgium, Luxembourg, and Germany.Many regions were hit by gale-orcegusts o more than 120 km/h, thestrongest o which was registered onthe Wendelstein mountain in Germany(202 km/h). Thunderstorms, some othem violent, ormed in the cold rontarea and were accompanied by hail-storms. Damage was also causedby tornadoes in eastern Germany.On the night o 1819 January, thestorm shited urther east, maximum

wind speeds o 140 km/h being re-corded in Poland, the Czech Republic,and Austria. Fig. 9 shows Kyrills windfeld winds exceeded 100 km/h overmuch o the United Kingdom, theBenelux states, Germany, Poland, theCzech Republic and Austria.

Winter Storm Kyrill

Munich Re Weather risks in central Europe18

Losses

Germany

Ten atalities > 1.5 million individual losses Hundreds o thousands o

households suered power cuts Rail transport at a standstill throughout

the country Slight to moderate storm surge on the

North Sea coast

Switzerland

Local wind speeds up to hurricaneorce (> 120 km/h)

Minor damage

United Kingdom

12 atalities Estimated > 0.5 million individual losses

in central and southern England Tens o thousands o households let

without power Beaching o container ship MS Napoli

France

Two atalities

Only northern France aected

Czech Republic

Three atalities Damage throughout the country

Netherlands

Five atalities Damage throughout the country

Belgium

Two atalities Damage throughout the country

Austria

> 150,000 individual losses

20,000 households hit by power cuts

Poland

Four atalities Damage throughout the country

Fig. 7 Overall European windstorm losses and

insured losses 19702007*

20

15

10

5

0

1970 1975 1980 1985 1990 1995 2000 2005

Losses in bn

Fig. 8 Insured European windstorm losses 19702007*

35

30

25

20

15

10

5

0

Jan. Feb. Mar. April May June July Aug. Sept. Oct. Nov. Dec.

Overall losses per month (bn)Insured losses per month (bn)No. o windstorms per month

70

60

50

40

30

20

10

0

Losses in bn No. o windstorms per month

* 19702006 at 2006 values; 2007 at original values.

Overall losses per year (bn)Insured losses per year (bn)

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The risks

Comparison o Kyrills wind eld with

major historical European windstorm

events

On the basis o an analysis o windspeeds and aected regions, theclosest comparison with Kyrill isWinter Storm Daria (1990). Lothar(1999) had a completely dierent geo-

graphical ocus (France, especiallyParis, Switzerland, southwesternGermany) and is thereore not reallya suitable benchmark.

Regarding Germany alone, Kyrill

could also be compared with Jeanett(2002). However, both the overallgeographical scope and the durationo Kyrill were considerably greater.

Daria (1990) cost the insuranceindustry some 4.4bn at the time(approximately 10bn at 2006 values),most o which was incurred in theUnited Kingdom.

Lothar (1999) set a new Europeanrecord or insured winter storm

losses, costing 5.9bn at originalvalues (7.3bn at 2006 values).

Jeanett (2002) caused a market losso 1.7bn in Europe (approximately2bn at 2006 values).

Munich Re Weather risks in central Europe 19

Fig. 10 Historical wind elds o windstorms

Daria, 1990, Lothar, 1999 and Jeanett, 2002 (rom let to right)

Fig. 9 Kyrills wind eld

Gusts in km/h809090100

100110110120120130

130140>140

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The ratio o insured to overall ood lossesremains low in central Europe due to selectiveunderwriting. Despite this, both the losses andthe demand or cover are increasing. Eectiveconstruction and land-use planning could helploss prevention considerably.

20 Munich Re Weather risks in central Europe

Flood risks

Water, water, everywhere:Ritopek, a suburb oBelgrade, during theDanube oods in April 2006.

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Scientifc aspects

Flood

Almost all places in central Europe are aced withthe risk o ood. It is a threat to which buildings andinstallations close to water are regularly exposed,but even areas some distance rom watercoursesand lakes are not sae. The causes and eects varyrom gradual inundation by the rising waters o alake or water table to debris ows in raging torrents.Floods are classifed as ollows:

River oods: These occur ollowing widespreadheavy rainall or as a result o snowmelt.

Flash oods: These result rom intense precipita-tion, typically during severe summer storms,usually over limited areas where there are con-siderable dierences in relie.

Torrents and debris ows: A mountain streamcan be transormed rom a babbling brook into

a raging torrent in a matter o minutes, causingerosion to slopes and channels. The water carriesrocks, stones, sand and earth along with it. I thesolid content is more than 30%, this is known asa debris ow.

Storm surges: Storm surges occur at the coastand on the shores o large lakes. Rising sea levelswill urther increase the risk o storm surge anderosion on coastlines throughout the world oneo the most serious consequences o globalwarming.

Water can pose a threat inmany dierent ways whentowns, villages and thecountryside are graduallyinundated (top: Prague,August 2002), when rivuletsare transormed into ragingtorrents (second rom the

top: the Steinerne Mhl riverin Austria), when debrisows consisting o water,rocks, stones and earth slideinto valleys, engulfngvillages in their path (thirdrom the top: Brienz in the

Bernese Oberland, August2005), or when water iswhipped up into a stormsurge by high winds (bottom:

storm surge, ooded Ham-burg fsh market, November2006).

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Reasons or increased food losses

The rise in ood losses is primarily due to theincreasing development o land near rivers andlakes. Mistakes have been and still are regularlymade in construction and land-use planning. Thissituation could be rectifed i responsibility or landuse were transerred rom a local to a higher level.It should be mandatory that anyone proposing tobuild be inormed o current risk exposure. Suchinormation would include the potential uninsur-ability o property on a specifc plot o land.

People like to live near water, in many cases know-ingly accepting the risks, and orgetting about thementirely as time passes without incident. Further-more, values in exposed areas can soar, thanks to asometimes illusory eeling o saety, i protectivemeasures (such as warning systems, ood barriers,

civil protection structures) have been installed.

Never beore have properties been as large, asvaluable and as vulnerable as at present. Heatingsystems and the associated oil storage tanks areamong the main problems. Moreover, the base-

ments o apartment or commercial buildings otenhouse the central control systems o lits and air-conditioning acilities, storage rooms and some-times even computer centres.

Nevertheless, the ratio o insured to overall oodlosses remains relatively small in central Europe,largely due to the low market penetration. Further-more, most losses involve uninsured public acil-ities such as roads, railway lines, dykes, riverchannels, bridges and other inrastructure instal-lations (e.g. water supply and sewage systems). InGermany, private-property losses accounted or

around 60% o 350m in the Whitsun 1999 oodsin Bavaria, or 43% o 8.6bn when the River Elbeooded in Saxony in 2002, and or just 15% o330m in the 1997 River Oder oods in Brandenburg.

Changes in central Europes food weather?

There is no doubt that a warmer global climate will

raise the concentration o water vapour in theatmosphere. This will not only increase precipita-

tion generally but also lead to more extreme rainintensities in the event o regional or local severeweather events, as observed in many places overthe past ew years. The variability o precipitationevents is growing and extreme weather conditionsare becoming more requent.

Central Europe is increasingly being aected bywesterly weather patterns and Vb depressions (seephoto above). During Vb weather conditions, low-pressure systems rom the Mediterranean basinmove eastwards o the Alps in a northerly direction.

German Weather Service studies show that theincidence o Vb weather conditions has risen sharplyin recent decades. For example, in summer 2005,there were three consecutive Vb weather periodsin the space o just six weeks.

This does not go against the general trend towardsdrier summers in some regions. Current climate-

change studies indicate that winters will becomewetter and summers drier (at least in southernGermany). However, rainall will be heavy and con-centrated into periods o a ew days in the summer.The high intensities will bring more ash oods.

This satellite image taken on22 August 2002 shows thelow-pressure system Ilse,which caused catastrophicoods along the Elbe andits tributaries in Saxony.Research by the GermanWeather Service shows asignifcant increase in thenumber o these centralEuropean weather troughs also known as Vb weather

conditions in recentdecades.

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The risks SwitzerlandCentral Switzerland suered the most disastrousoods in its history in 2005. I the heavily industrial-ised areas around Zurich and Basle were ooded,losses could run into billions o euros.

ItalyItaly came within a hairs breadth o disaster whenthe areas along the middle and lower reaches othe Po escaped ooding in November 2000. A repeato the November 1951 oods would produce tens

o billions o euros in losses. As things stand atpresent, however, less than 5% would be insured.

Czech RepublicAlmost all parts o the Czech Republic have beenhit by one or more ood events in recent years.A rainall centre at the heart o the country couldaect the entire Czech Republic at once. Losses onthe Elbe (2002) would then be added to those o theOder (1997), producing a potential total o around5bn. A substantial portion o this would be insured.

Slovak Republic

Torrential rain and subsequent ash oods, caus-ing tens o millions o euros in losses, are virtuallya regular occurrence. A precipitation centre situatedslightly to the south o that o 1997 (in the region othe High and Low Tatra mountains) and producingsimilarly copious quantities o rainall could aectthe whole country.

Bratislava, the capital, aces a completely dierentmajor loss scenario. The River Danube is joined tothe north o the city by the River Morava, and thencrosses the countrys economic heartland. How-ever, the most recent major ood events in 2002,

2005 and spring 2006 caused little damage,despite ow return periods o some 50100 years.

SloveniaSlovenia is also prone to events capable o trigger-ing nationwide ash oods, debris ows and land-slides. The country had a taste o what might be instore in August 2005. Although Slovenia has nomajor water courses, the country is crossed by twotypically alpine rivers, the Drava and the Sava,

whose ood peak is potentially a multiple o theaverage ow rate.

Loss potential

Major loss scenarios and their loss potential

A handul o events stand out in the chronology othe last 15 years ood disasters (Table 4). In uture,still greater catastrophes may occur, causing evenhigher losses.

GermanyValues along the Rhine and its tributaries are much

greater than those o the Elbe region in 2002. Onthe other hand, the Rhine has dierent hydrologicalcharacteristics, so that it is not necessarily appro-priate to draw direct parallels. However, it can beassumed that an extreme weather event on theRhine could involve economic losses considerablygreater than the 11.8bn Elbe losses in 2002. More-over, although ood cover is not as prevalent under

household policies in western Germany, the insuredlosses could also exceed 5bn due to the Rhineareas high industrial values.

Austria

A precipitation event on the scale o 2002 (over400m in insured losses) could unleash disastrousoods along the Danube i the centre were slightlyurther south. In addition to losses on smallerrivers and streams, cities like Linz and even Viennawould have huge loss potential. Whilst the prob-ability o a Danube ood aecting Vienna is low,the river bed within the city being designed to copewith a 1,000-year discharge, the relatively minorWien river is more likely to pose a threat in theevent o heavy local rainall. Despite strict limits onthe insurance o residential buildings, insuredlosses could be over 1bn, and as much as 3bn i

the limits were raised or removed completely.

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The risks Loss preventionLosses occur when people and their possessionsare aected. To prevent losses, either the water hasto be contained or people (and their values) mustnot be exposed to its eects. Structural measuresdesigned to protect property can help, together with

suitable use o the land and appropriate responses

to danger (such as taking the precaution o evacuat-

ing parts o buildings that are at risk).

Risk prevention

The risk o loss is derived rom the probability oood and the ensuing costs. The risk at any oneplace is nil i there is no possibility o ooding orvalues are nil at that particular location. However,i we include the ash ood hazard, virtually nodeveloped areas o central Europe are completelyree o risk.

The risk can be minimised by implementing meas-ures designed to prevent oods and losses. How-ever, a residual risk will always remain.

Reducing the underlying risk or society as a

whole is primarily a task or the state. It sets upobservation and early-warning systems, controlsood discharge, and enacts statutory provisionsthat provide a legal ramework or the use oexposed areas. Optimum preparation or dealingwith catastrophe situations is extremely important.This primarily concerns early-warning systemsand eective alarm strategies.

Property owners can help prevent loss by con-structing suitable buildings and by being preparedto respond to emergencies and ready to act i dis-aster strikes.

The main task o insurance companies is to pro-vide compensation or major fnancial loss. Inaddition, they can and must actively support risk-prevention measures.

Eective prevention strategies

Governments, businesses and private individualsmust be prepared to ace extreme ood eventsinvolving heavy losses. Water authorities will haveto take such risks into account when assessing pro-

tective measures. Insurers will have to make dueallowance or this trend, primarily by charging pre-miums commensurate with the risks. Preventivemeasures can be divided into our categories.Although they are linked, each calls or a completelydierent approach.

Flood preventionFloods are part o the natural hydrological cycle.However, man intervenes by inuencing the climate(which results in increased and more intense pre-cipitation), reducing the infltration capacity o thesoil (sealing, soil compaction due to agricultural

activity), channelling the water into rivers and lakes(via drainage ditches, sewers), and to the sea (riverregulation, removal o ood retention areas). When-

ever possible, top priority must be given to retain-ing the water. At the same time, however, removingsoil sealing, applying local ood detention meas-ures, implementing river restoration schemes, andrelocating dykes will have only limited eect onextreme ood peaks, given the sheer volume owater that swells a river in ood.

Flood controlEngineering measures can be used to control

oods, such as restoration works, areas designedto retain the water, namely ood detention basins,reservoirs and polders, or dykes that channel oodwaters. All these measures are based on what iscalled a design ood, i.e. using a relatively highood value as a yardstick to design protectionmeasures.

The ood control methods most commonly usedare dykes and ood deence walls, together withdunes and storm-surge barriers on the coast.Germanys North Sea coastline and river estuariesalone have some 1,800 km o dykes, 650 km o

which are directly exposed to storm surge. As wellas meteorological and oceanographic actors(wind, storm surge height and duration, waveheight) dyke standards are a crucial actor wheresaety is concerned. In Germany, dykes are nor-mally designed on the basis o a 100-year waterlevel, but allowance is also made or a saety margin,

to take account o wave run-up, and a reeboard.Thus, or coastal dykes, the ultimate saety standardis in the 5001,000-year storm surge range. Saetymargins or river dykes are considerably lower.Dyke saety also depends on other actors, such aswater permeability and resistance to erosion.

What is a 100-year food?

A 100-year ood is the discharge or the water levelreached at a given point on a river once in every100 years (return period) on a long-term average.Thus, a 100-year ood is expected to occur approxi-

mately ten times in every 1,000 years. However,this does not indicate at all when such occurrenceswill take place. Strictly speaking, it is not possibleto defne the return period or a geographical area,but only or a specifc location. Attempts to do so usually in the media are not normally based onstatistical fndings but rather a matter o conjec-ture, and purely subjective. Although it is possibleto use models to draw conclusions about ood loss

requencies, loss return periods cannot be equatedwith ood return periods.

24 Munich Re Weather risks in central Europe

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The hot summer o 2003, record temperaturesin 2006, midsummer conditions in April 2007 more requent heatwaves and their impact onpeople and the economy are a challenge thatthe insurance industry aces in many lines obusiness.

Extreme temperatures, snow accumulation and risks

in mountainous regions

The dry, cracked bankso the Rhine in Dsseldor,April 2007.

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Heatwaves and drought

Average air temperatures in Europe rose byapproximately 0.9C in the last century wellabove the global average. This resulted in periodso extreme heat and drought during the summermonths. Climate models indicate that such trendswill be even more pronounced in the uture.

Denition o heatwave and drought

Whilst there is currently no standard defnition othe term heatwave, it clearly comprises two elem-

ents: exceptionally high air temperatures and aperiod o several days duration. In the USA, aheatwave is defned as a series o more than threeconsecutive days on which temperatures are over32.2C (90F). In central Europe, the term heatwaveis usually applied to periods o several days duringwhich daytime air temperatures exceed 30C.

Similarly, there is no clear defnition o droughtor dry spell. Drought is commonly understood to

be a relative concept that denotes a reduction inwater availability in a particular region over a givenperiod compared with the long-term average. Thus,

drought signifes a temporary shortage o waterthat is normally o gradual onset, as opposed toaridity, a permanent state. Opinions are divided asto whether climatological or hydrological extremesare in themselves sufcient to constitute drought,or whether it has to be demonstrated that they haveresulted in adverse consequences. The problemwith drought as opposed to permanent aridity isthat nature (ora and auna) and human beingshave not adapted to the conditions, and this gives

rise to a high degree o vulnerability.

Heatwaves

Heatwaves aect people directly, increasing theburden on the cardiovascular system and thuscausing higher morbidity and mortality. They canalso be a ood-hygiene hazard, creating ideal con-ditions or the spread o salmonella, or instance.

Hot summer o 2003The meteorological summer o 2003 was a particu-larly extreme event over much o Europe. Between

June and August, average temperatures through-out Germany exceeded climatological averages orthe period 19611990 by 3.4C. According to ananalysis by the Frankurt University Institute orMeteorology and Geophysics, on the basis o pre-vious climate statistics this roughly corresponds toa 450-year event probability, even though May andSeptember, which were also exceptionally hot,were not taken into account. Moreover, the heat-wave is an even more extreme outlier in climatestatistics since it aected not only Germany butalso much o central, western and southern Europe.It claimed more than 70,000 lives and was, thus, one

o Europes worst natural catastrophes in humanterms o recent centuries.

July 2006 New peak levelsJust three years later, in summer 2006, new recordswere set across much o Europe. July was thewarmest month ever recorded in Germany. Aver-age air temperatures were between 19.9C (Helgo-land) and 25.1C (Karlsruhe) higher than the pre-vious record month, August 2003. In Germany, all31 days in July were registered as summer days(maximum temperatures o at least 25C) at anumber o weather stations, and up to 15 as tropicaldays.

Rising temperatures in central Europe A preludeto subtropical conditions? The probability o a summer as hot as that o

2003 has increased by a actor o 20 in the lasttwo decades. According to statistical analyses bySwiss climatologists, this is to be expected everyother year in the last third o this century, that isto say it will become the norm.

Another Swiss study shows that the requency otropical days in Europe will have changed by theend o the current century. Central Europe willhave an additional 40 tropical days each year, and

northern Italy up to 60 more (Fig. 11).

Drought

Drought can be caused by increased evaporationor reduced precipitation but is generally due to acombination o both. During the prolonged high-pressure weather conditions in summer, increasedair temperatures and intense solar radiation causegreater evaporation, whilst precipitation amountsare low. That is why droughts and heatwaves re-quently coincide. Since they tend to be caused bylarge-scale, persistent atmospheric conditions,

they usually aect widespread areas. Higher waterconsumption by agriculture, industry and the pop-ulation in general also causes, or at least exacer-bates, drought. In the hot summer o 2003, centraland eastern Europe suered a major drought. Fig.12 shows the areas most severely aected.

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The risks Thus, where the insurance industry is concerned,not only are lie and health business aected butalso various property classes and business inter-ruption insurance. Increasing heat stress can also hit

tourism and the corresponding insurance products.

All in all, we expect demand or protection toincrease as industry and commerce become moreaware o the risks posed by changing climate con-ditions. In the short term, protection is alreadyavailable against the fnancial consequences o

exceptional weather in the orm o weather deriva-tives and weather insurance. These are based on apredefned event which triggers compensation orloss o earnings or additional costs. The long-termtendency towards hotter, drier summers will, ocourse, be reected in pricing.

At the same time, policyholders are also endeav-ouring to mitigate the risks by taking preventiveaction. This can be seen by comparing 2003 and2006 in the agricultural sector. Farmers have madechanges to their land and work in line with the lat-est agricultural best practices. They can also insure

against crop losses. Crop insurance normally guar-antees a specifc sum insured, calculated by multi-plying yield per hectare by price per tonne, ratherthan covering a certain quantity o yield. Technicalprogress plays a crucial role in risk assessment.New varieties, conservation tillage, and pesticidesthat cause less crop stress will urther increaseyields per hectare. Agriculture can and will adapt toclimate conditions.

The summer o 2006 was also exceptionally dry,rainall over much o Europe being only hal theaverage. Similar drought spells will become armore common in many parts o central Europe inuture, due to a substantial decrease in summerprecipitation caused by climate change. This,

together with the projected rise in air temperaturesand associated increase in evaporation, will meana dramatic increase in the probability o drought.

Summary

Central Europe is already exposed to heatwavesand drought because climate change is alreadyhappening and, indeed, gaining momentum. Expos-

ure will thereore increase dramatically in uturedecades, constituting a risk o change that willaect the insurance sector.

The more requent and intense heatwaves gener-ated by climate change not only signifcantlyincrease morbidity and mortality, primarily amongthe elderly, but also impact the economy. Moreaccidents occur and productivity alls. In addition,heat and drought reduce agriculture and orestryyields, and alling river levels can signifcantlyaect revenues in inland shipping and in the utilitiessector, where power plants have to be shut down iinsufcient water is available as coolant. The wild-fre hazard also rises, increasing the risk o a majordestruction o values (including insured values).

Fig. 11 Are the tropics extending into Europe?

The map shows how the number o days

with a maximum temperature o more than30C will change by the end o the centuryi the IPCC-A2 climate scenario (pessimistic,with very high emissions) is compared withthe reerence period 19611990.

Fig. 12 Precipitation anomalies, summer 2003

Average summer precipitation in 2003 as

a percentage o precipitation in the period19611990.

Source: The Global Precipitation Climatology

1 5 10 20 30 40 50 60 70 80 90 100 200 Days 25 50 66 80 100 125 150 200 400

75N

70N

65N

60N

55N

50N

45N

40N

35N

30N

30W 20W 10W 0 10E 20E 30E 40E 50E

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Potential major snow load losses

All the climate models orecast warmer centralEuropean winters, with ar less snow. Following anumber o years when snowall had been relativelylow, the winters o 2004/5 and 2005/6 showed thatthe snow load risk was by no means a thing o thepast. Major losses can still result i heavy snowallscombined with prolonged cold spells cause a build-up o successive layers.

Winter 2005/2006 brings heavy snow to Austria

It began to snow heavily in Austria on 20 November

2005, particularly in the southeast (Carinthia andStyria), which was soon covered in a thick layer osnow. This was ollowed, rom the beginning oDecember, by precipitation in the extreme westand south, lasting until a Genoa low brought rainor heavy snow to most o Austria. Major snowallscontinued into January 2006. The huge weight osnow caused damage in orest areas as well as tobuildings, especially in Lower and Upper Austria,Salzburg, Burgenland and Upper Styria.

Following a more settled period, rom 17 January2006, resh snow began to all on top o the existinglayer in the west o the country. The snow catas-trophe reached a climax on 7 February when theAustrian capital was also aected. Nearly all ederalstates reported collapsed roos; schools, shoppingcentres, businesses, sports halls, and hotels wereevacuated and churches closed. A state o emer-gency was declared in parts o Lower Austria andUpper Styria.

Frost, snow and ice

Snowstorm, rost and reezing rain are perils thatcan have disastrous consequences, requentlyunderestimated in the past. In 2004, the GermanFederal Ofce o Civil Protection and DisasterAssistance organised a crisis-management exer-cise involving the relevant authorities and the util-ities sector. It simulated this type o scenario: asnowstorm with reezing rain ollowed by sub-zerotemperatures, 75% o municipalities and rural dis-

tricts in southern Germany being without poweror ten days. As a result, lighting, heating, coolingand ventilation systems, public transport, telecom-munications and workplace equipment (machines,computers) came to a standstill almost every-where. Public lie was brought to a halt and evenmilitary communications were aected to an extent.

In the mock exercise, hundreds o thousands oanimals perished due to ailure o the heating andventilation systems in their quarters. There werealso deaths in hospitals and retirement homesbecause the power cut aected heating and lie-sustaining equipment, such as dialysis machines.

Weather events o this kind can cause huge losses

or the insurance industry, since policies may notexplicitly exclude many o the costly knock-oneects (in the production and service sectors).These could be covered under business inter-ruption or liability policies, or instance.

Despite global warming,the possibility o extremewinters with high losspotential cannot bedismissed. In 2006, theroo o the ice rink in BadReichenhall (Germany)collapsed under the weighto snow ollowing heavyalls combined with aprolonged cold spell.The death toll was 14.

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The risks The event occurrence issue

Insurers and reinsurers need a clear defnition othe snow load loss occurrence. Whilst the spatial andtemporal parameters pose no problem rom themeteorological perspective, defning the origin othe loss is more difcult, since it depends to a largeextent on previous as well as current snowalls i.e.

the weight o snow already lying on a roo. In awinter like the one described above, requentheavy snowalls are interspersed with short thaws

accompanied by rain and rosty periods. The snowload steadily increases over the weeks unlessreduced, to some extent at least, by a real thaw. Ithe weight then reaches a critical point, a normalsnowall will be sufcient to cause a roo collapse.

Similar problems are encountered in connectionwith the defnition o ood loss occurrence, andMunich Re ormulated a proposal to address theissue some time ago. An equivalent proposal isneeded dealing with snow load losses.

Flood: Although it has not triggered a ood, pre-

vious precipitation has saturated the ground tosuch an extent that infltration is almost impededand virtually all excess water ows directly intowatercourses, potentially causing ood waveseven without extreme precipitation.

Snow load: Prolonged snowall (alternatingperiods o thawing and reezing making the snow

more compact) results in a high snow base load.Even moderate urther alls may cause losses.

In principle, thereore, hours clauses are not appro-priate or either category o peril.

Finally, the beginning o March saw the last majorall, when a low-pressure system rom the Adriaticbrought frst rain, and then more heavy snow.Further building collapses were reported. Thesnow masses quickly melted in late March, as rainarrived and temperatures throughout the countryclimbed to over 10C. The snow load risk was thensucceeded by a rapidly increasing ood hazard.Fortunately, the rain soon ceased, and the countrywas spared an additional disaster in the orm ooods.

The snow proved a costly event or Austria. Theeconomic loss is estimated to have been around500m and the insured market loss some 250m.The scale involved is due to the act that snowload losses to residential buildings, which are notinsured in most other countries, are covered understorm policies in Austria. Market penetration is over

90%, whereas in the east o Bavaria (Germany),where similarly spectacular losses occurred, ewerthan 10% o homeowners have extended naturalperils insurance, which covers snow load hazards.

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A number o spectacular events in the summer o2006 (rockall at the St. Gotthard Pass, collapse o arock ormation on the Eiger, glacier outburst oodin Samedan) have also highlighted the eects oclimate change in the mountains. Permarost areaswill thaw and glaciers shrink still more quickly as aresult o global warming. This will tend to destabil-ise sloping ground, producing more loose material,which will be carried downhill by landslides anddebris ows i there is heavy precipitation. Althoughan increase in the number o debris ows is notstatistically proven, the causal link is evident.

The cost o preventive measures to counteractmountain risks compared with the losses involvedis doubtless more disproportionate than in the caseo ood in central Europe at least. Switzerlandalone has invested over 1bn in avalanche deencestructures since the severe avalanches o winter1951. This is mainly due to the act that such occur-rences are usually sudden and unoreseen, andthereore extremely hazardous to human lie. Pro-tecting human lie rightly calls or the implementa-tion o more costly measures than the preventiono property damage alone.

Avalanches, landslides andsimilar phenomena

Mountainous regions are exposed to characteristicnatural hazards. Essentially, these are ash oodsand various types o mass movement, i.e. debrisows, landslides, rockalls, mass ows, glacier iceavalanches, glacial lake outburst oods and, ocourse, snow avalanches. They have huge destruc-tive potential but are local occurrences, damagebeing confned to a limited area. They, accordingly,

tend not to have major signifcance or the insuranceindustry.

The winter o 1998/99 was marked by exceptionalavalanche occurrences which claimed 79 lives andcaused economic losses in excess o 800m (1bn at

2006 values). Most o the insured losses occurred inSwitzerland, where the loss borne by the insuranceindustry was nearly 200m (250m at 2006 values).

The average annual total o mass-movement lossesin central Europe is also relatively low. Moreover,this type o risk can be avoided provided the danger

zones, which are marked or at least known in mostcountries, are respected.

Avalanches and otherhazards common tomountainous areas arisesuddenly and unexpectedly.Protective measures arethereore more complexthan or ood events.

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UnderwritingaspectsLoss experience is no longer a criterionor the assessment o uture losses. It istime to re-analyse the risk situation inEurope due to weather-related perils.

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Value concentrations are increasing oering a growing target or naturalhazards. Covers have to be changed in thelight o this trend.

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Flood

Residential:

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Underwriting aspects Germany

Denitions o perils

Deductibles (D)/loss limits (LL)/

annual aggregate limits (AAL)

Zoning

Specic market eatures

Austria

Obligatory cover

Market penetration

Insurance terms and

conditions

Available covers

Main exclusions

Denitions o perils


Standard deductibles, loss limits, annual aggregate limits (AAL)

Windstorm conditions FloodDeductible Loss limit Deductible Loss limit

VHB None NoneVGB None None

AStB Max. 500 NoneBWE 10% o loss, Nonemin. 500,max. 5,000or 15% osum insured* None

ECB 2,50012,500 Max. 5m AAL** Max. 50,000** 20% o suminsured,max. 5m**

ECBUB 2,50025,000 Max. 5m AAL** Max. 50,000** 20% o suminsured,max. 5m**

ABE Min. 500 None Min. 500 NoneAMB Min. 500 None Min. 500 NoneAMBUB Min. 25 None Min. 25 None

days **/*** days **AMoB Min. 500** Various with Min. 500 Various withturnover policies turnover policies

ABN Min. 500** Various with Min. 500 Various withturnover policies turnover policies

ABU Min. 500** Various with Min. 500 Various withturnover policies turnover policies

* According to a survey by the German Insurance Associat ion.** More or industrial risks, depending on the individual case.*** Substantially higher deductible in the case o project business interruption.

Austria

In Austria, private insurance companies cover windstorm, rock-all, alling stones, landslide, hail and snow load. Followingoods in 2002 and 2005, there has been an increase in thenumber o products covering natural hazards including ood.First-loss covers are requently utilised, loss limits being rela-tively modest (or example 4,000 or 8,000). Sublimits undercommercial and industrial policies are oten expressed as apercentage o the sum insured.

Another eature specifc to Austria is a national disaster und

fnanced out o tax income. It provides aid in the event o naturalhazard occurrences o exceptional proportions. The primarybenefciaries are private households, but there is no legal entitle-ment to beneft. Moves are now aoot to signifcantly extend thescope o natural hazard cover by introducing higher limits andachieving greater market penetration.

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Flood

Flood is inundation o the insuredpremises by substantial quantities osurace water due toa) the bursting o the banks o surace (still

or owing) bodies o water,b) precipitation,c) the emergence o groundwater at the

surace as a result o a) or b). Backwater means that, contrary to the

intended purpose, water enters a building

through drainage pipes, or installationsconnected to such pipes, when surace(standing or owing) bodies o waterburst their banks, or as a result oprecipitation.

See table on the let

Four ZRS exposure classes (ZRS: zoningsystem or ooding, backwater and heavyrain)

Storm surge excluded

Other weather risks

Landslide is the natural slide or all oearth or rock masses.

Snow load is the eect o the weight osnow or ice masses.

Avalanches are snow or ice masses thatdescend the side o a mountain.

See table on the let (as or ood)

No zoning available

Windstorm/hail

Windstorm is a weather-related airmovement o at least orce 8 on theBeauort Scale (min. 63 km/h).

Hail is solid precipitation in the ormo ice pellets.

See table on the let

Two zones, broken down by postcode

Storm surge excluded

Flood

No

Residential: approx. 4050%Commercial/industrial: approx. 2030%

Specifc conditions or natural hazardinsurance

Household, owner-occupied housing,commercial, industrial, etc.

Losses caused solely by the rise o a water

table.

Flood is the inundation o the insuredpremises.

Terrain model (Hora)

Other weather risks

No


Specifc conditions applicable to naturalhazard insurance


Flood debris accumulation is causedby mass movements o soil, water, mud,and other components triggered by thenatural eects o water.

No insurance pool

Windstorm/hail

No


Separate conditions or windstorm and hail


Avalanche, storm surge, ood, inundation

Wind speeds o over 60 km/h

No insurance pool

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Flood

Obligatory, under fre policies

Approx. 100%

Same as the fre sum insured

Under the fre insurance policyLosses caused solely by the rise o a water

table

Flood is the inundation o the insuredpremises.

Intercantonal Reinsurance Union, SwissNatural Perils Pool

Other weather risks

Obligatory under fre policies

Approx. 100%


Under the fre insurance policy

Flood debris accumulation is caused bymass movements o soil, water, mud andother components and is triggered by thenatural eects o water.

Intercantonal Reinsurance Union, SwissNatural Perils Pool

Windstorm/hail

Obligatory under fre policies

Approx. 100%


Under the fre insurance policyAvalanche, storm surge, ood, inundation

Wind speeds o over 75 km/h

Intercantonal Reinsurance Union (IRV),Swiss Natural Perils Pool

Flood

No

Residential: over 90%Commercial lines: over 20%Industrial lines: over 40%

General terms and conditions or naturalhazards, terms and conditions or commer-cial and industrial enterprises

Buildings and contents insurance, insuranceor commercial and industrial enterprises,engineering, etc.

General exclusions (e.g. unfnishedbuildings under buildings insurance)

Flood constitutes an incursion o waterthat remains in or ows through the insuredlocation or a given period o time.

Residential: approx. 25Commercial lines: approx. 250Industrial lines: approx. 7,500

No insurance pool

Other weather risks

No





Landslide signifes the movement o stonesor earth masses rom a higher to a lowerlocation due to natural hazards.


No insurance pool

Windstorm/hail

No





Windstorm is the dynamic eect o anair mass on the insured premises and isdefned as being at least orce 8 on theBeauort Scale (wind speeds 6274 km/h)at the insured property.


No insurance pool

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Underwriting aspects Slovenia

Obligatory cover

Market penetration

Insurance terms and

conditions

Available covers

Most requent exclusions

Denitions o perils

Deductibles


Italy

Obligatory cover

Market penetration

Insurance terms and

conditions

Deductibles

Available covers

Main exclusions

Perils covered


Slovenia

Windstorm and hail are included in the basic cover in Slovenia.They are covered under all private property policies without losslimit. Commercial and industrial policyholders also have wind-storm and hail cover or the most part.

Losses incurred in the past along the Sava and Drava rivers have

increased demand or other natural hazard covers such as ood.However, market penetration in Slovenia remains low comparedwith other countries.

In general, loss limits and deductibles are not common underprivate buildings and contents policies. In the case o commer-cial and industrial risks, the normal practice is to assess the spe-cifc risk, maximum loss limits and/or deductibles being basedon the particular risk parameters (e.g. location, concentration ovalues, vulnerability).

Flash oods that trigger landslides are becoming more commonin Slovenia due to climate change and topographical actors.

This could bolster demand across the board or cover o weatherrisks other than windstorm, hail and ood.

Italy

Private insurance companies normally include storm and hailcover under the fre policy. Flood cover is rarely granted to pri-vate households. Whilst it can be covered under commercial and

industrial policies, it is not available on a stand-alone basis butincluded under the fre policy, subject in most cases to loss limits.

Private individuals who live in a designated disaster area canapply or state compensation. The scheme has only been usedor ood and earthquake events in the past, but not as yet orwindstorm events.

Flood risk zoning will be available rom 2008, which is whenSIGRA, a project to develop sotware or assessing the oodexposure o individual risks or portolios, is due or completion.It will include the ood plains o all Italys major rivers and is alsoexpected to be made available to the insurance industry in the

course o 2008.

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Flood

No

Residential: 50%Commercial lines: 5%Industrial lines: 10%

General terms and conditions or fre andhousehold insurance, terms and conditionsor commercial and industrial enterprises



Flood is the accumulation o enormouswater masses, caused by exceptionalrainall, that exceed the capacity o thewater systems or are not able to drain away.

Residential: 0Commercial lines: 0Industrial lines: 0

No insurance pool

Other weather risks

No

Residential: 50%Commercial lines: 5%Industrial lines: 10%




Landslide signifes the movement o stonesor earth masses rom a higher to a lowerlocation due to natural hazards.


No insurance pool

Windstorm/hail

No

Residential: 100%Commercial lines: over 90%Industrial lines: over 90%




Windstorm is a weather-related air masswith a wind speed o more than 60km/h atthe insured premises.


No insurance pool

Flood

No

Residential: No, only in exceptionalinstances, very high premiums

Small, medium-sized industrial: 6080%Large industrial: over 95%

Specifc natural hazard insurance terms andconditions, included in the fre policy

Commercial, industrial:Sublimit oten 50% o the fre sum insured

Yes, depending on the type o risk in theindividual case

Heavy seas, high and low tide, seaquake,landslide, subsidence, local landslide,

humidity, dripping, infltration o dampnessthrough walls (literally exudation),infltration; original version: mareggiata,marea, maremoto, rana, cedimento,smottamento, umidit, stillicidio, trasuda-mento, infltrazione

Flood, alluvial deposits, static ood/dampness also caused by earthquake;original version: inondazioni, alluvioni,allagamento/bagnamento anche causatoda terremoto

No insurance poolResidential: State compensation i the event is

designated a disaster, no clear defnition

Commercial and industrial: Insurance solution

only when SIGRA risk zoning available in 2008

Other weather risks

No

Residential: NoSmall, medium-sized industrial: 6080%

Large industrial: over 95%

Specifc natural hazard insurance terms andconditions, included in the fre policy

Commercial and industrial insurance:Sublimit oten 50% o the fre sum insured

Yes, applied according to the individual risktype

Static ood (water is not owing), earth-quake, avalanche, volcanic eruption,

dampness, dripping, infltration o damp-ness via walls (literally exudation),infltration; original version: allagamenti,terremoto, slavine, valanghe, eruzionevulcanica, umidit, stillicidio, trasudamento,infltrazioni

Local landslide, landslide, subsidence;original version: smottamenti, ranamenti,cedimenti del terreno

No insurance poolResidential: State compensation i the eventis designated a disaster, no clear defnitionCommercial and industrial: Insurance solution

only

Windstorm/hail

No

Residential: 2030%Small, medium-sized industrial: 6080%

Large industrial: over 95%

No separate terms and conditions orwindstorm and hail; included in the frepolicy

Household, owner-occupied housing,commercial, industrial

Yes, depending on the type o risk in theindividual case

Earth movement, volcanic eruption,seaquake, inundation, ood, ingress o salt

water, landslide; also exclusion o specifcparts o buildings e.g. chimneys, antennae,satellite dishes, solar installations

Weather event: (1) Hurricane, wind,windstorm, thunderstorm, hailstorm,tornado; original version: (1) Uragano,vento e cose da esso trascinate, buera,tempesta, grandine, tromba daria ed altresimili maniestazioni atmoseriche; (2)Moisture due to hailstorms, snowmelt

No insurance pool

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One alternative is a comprehensive crop insurance

scheme covering individual armers against reduc-tions in yield. This type o system, which allowsarmers to actively manage the risk, is ound mainlyin the USA and Canada, but has also been intro-duced in Spain and Portugal. In the event o loss,the armer is legally entitled to the insured yieldamount or that particular arm, payment beingmade immediately ater the loss has occurred.

Reduced agricultural yields substantially increase

insurers loss ratios in individual years. Farmers paythe price.

Increasing weather extremes in Europe, such asprolonged hot spells, severe hailstorms or ashoods, put strains on agriculture. Demand or thecover o crop ailure due to natural hazards is grow-ing.

Many European countries have a state subsidy sys-tem under which ad-hoc payments are made oruninsurable crop losses caused by natural hazardevents. Although, in the event o an ofcially desig-

nated natural disaster, direct payments o this kindreduce the losses sustained by armers in the areaaected, the system is not particularly efcient ora number o reasons: compensation amounts lacktransparency and depend on the budget o thecountry concerned; armers have no legal right topayment; the administrative eort involved isextremely high, resulting in considerable paymentdelays and liquidity problems or the arms; com-

pensation tends to be insufcient, oten constitutinga mere raction o the actual loss.

Agricultural insurance

Loss caused by drought at avineyard.

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Systems in the dierent countries

Yield reductions due to natural hazards can pro-duce high loss ratios or the insurance industry inindividual years. Insurance premiums are thereoreoten beyond armers fnancial means, and statesupport is generally indispensable. Premium sub-sidies reduce the fnancial strains on armers, whoare then more willing to take out insurance, thenet result being that market penetration, regionaldiversifcation and risk spread increase. In the USA,

some 60% o agricultural insurance premiums aresubsidised, and approximately 80% o agriculturalland is insured against crop ailure due to naturalhazards.

The German Insurance Association has produceda drat or multi-peril crop insurance. Again, this isbased on a system o state subsidies, althoughcorresponding legislation would have to be passed.

Farmers can insure against crop ailure due to hail-storms, but there is currently no comprehensivecover which includes all the relevant natural hazards.

Hail insurance with optional limited windstorm,ood and other covers is also available in Switzer-

land. However, there is no comprehensive, state-subsidised multi-peril crop insurance as such.

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