Prague flood will raise premia level

As members of an Island race we might feel inclined towards a certain smugness as we watch Prague do its best not to be swept away by the surging River Vltava.

Apart from the odd bit of moisture on the streets of Ringsend and Clonmel, the sort of dramatic flooding now wreaking havoc across central Europe is unknown to these shores.

It all gives rise to a feeling of "it couldn't happen here" and with that some relief that we will not have to pick up the tab for the billions of euro worth of damage being done in the Czech Republic and elsewhere.

Unfortunately it is not that simple. The reality is that cost of of rebuilding Prague will show up in household and other insurance premia in Ireland next year.

There are two reasons. The first and most obvious one is that two of four insurance companies that dominate the Irish market are European and are likely to be very heavily exposed in central Europe.

Munich-based Allianz did not even want to contemplate the impact of the floods when it unveiled a €356 million second-quarter loss on Wednesday. No doubt the situation is equally glum over at Zurich (which owns Eagle Star).

The two other big insurers here, AIG and CGNU (which owns Hibernian here) will also have taken a bath on the floodwaters.

The reality is that these companies will one way or another seek to recoup some of these losses from other parts of their global operations, including Ireland.

The other way in which the weather-related disasters hitting Europe will have an impact here is through their effect on the re-insurance market.

Ultimately it is the re-insurance companies (the insurance companies' insurance companies) that will pick up much of the tab.

In good insurance industry fashion they will waste no time passing these losses back to their customers in the form of higher re-insurance premia across a range of risks. The insurance companies will then pass on the higher premia to their customers with similar alacrity.