Munich Re has predicted reinsurance rates in Europe are expected to trend higher at the upcoming January renewal season, citing a number of factors such as major losses from extreme flooding on the continent and a rise in weather events in affected regions.

“Rising prices for various assets and the latest major losses make considerably higher reinsurance rates in Europe likely,” Member of the Board of Management Doris Hopke said.

“In addition, the higher inflation is accompanied by continuing low interest rates for investments.

“Accordingly, I see a number of indicators for prolonged market hardening when the renewals come.”

The reinsurance giant says the most serious losses in Europe this year were in connection with the floods that struck Central Europe in mid-July. Overall losses amounted to an estimated €46 billion ($71.9 billion), of which more than €9 billion ($14.1 billion) were insured.

Germany experienced its most costly natural catastrophe when the July flood disaster led to total losses of €33 billion ($51.5 billion) and insured losses of at least €7 billion ($10.9 billion).

At the same time, the euro-zone economy has seen a spike in inflation, with prices well above 3% in September.

“Higher inflation also leads to higher claims costs,” Munich Re said. “In the long term, the inflation rates will likely normalise again, but remain above the pre-COVID level.

“In contrast, interest-rate levels have remained virtually unchanged. Taken together, these two factors are producing an upward pressure when it comes to insurance prices.”

Ms Hopke, who spoke last week at the virtual Baden-Baden Reinsurance meeting, says climate change is increasingly impacting weather catastrophes.

In presentation slides she provided at the meeting, Munich Re says government action is required to limit exposed values in flood plains and that mandatory insurance or inclusion of flood risks in standard homeowner policies could be a means to reduce the protection gap.

The protection gap in Europe is still very large, with only 35% of weather-related losses insured since 1980, Munich Re said.