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Sept. 16 (Bloomberg) -- The world’s biggest reinsurers, pushed by rising competition in existing markets, are preparing to insure against Dutch floods, a peril that centuries of experience have warned most in the Netherlands against.

Swiss Re Ltd., the No. 2 reinsurer, is ready to start providing coverage, an official said. Munich Re, its bigger competitor, is “in talks regarding various initiatives for flood cover in the Dutch market and is investing in product development,” spokesman Stefan Straub said in an e-mail.

Swiss Re officials met with insurance executives and brokers in the Dutch coastal town of Noordwijk this month to explain the firm’s risk model. The offer, extending only to commercial and industrial insurance, is the latest attempt to provide protection from a danger that defines and threatens the country of 16.9 million people carved out of North Sea wetlands. Most insurers scrapped Dutch flood insurance after an inundation 61 years ago wrought damage amounting to 10 percent of gross domestic product.

“We are ready to offer capacity to help insure companies against floods in the Netherlands,” said Thilo Herrmannsdoerfer, the market head for Switzerland & Benelux at Zurich-based Swiss Re, whose team made the presentation on Sept. 4. “We can give cover for risks immediately if clients are interested.”

Reinsurers sell policies to insurance companies such as Aegon NV and Delta Lloyd NV to cushion their losses from costly disasters.

Eight Centuries

When it comes to building bulwarks against the sea, few know as much as the Dutch, who have eight centuries of experience. Firms from the Netherlands were hired to develop new water protection systems in New Orleans after Hurricane Katrina devastated the city in 2005, and to provide pumps to flooded lowlands in Somerset, England in February.

More than half of the wind-swept Netherlands is prone to floods from the sea and rivers, a threat that may grow as global warming lifts ocean levels. The area at risk encompasses two- thirds of economic activity and the four largest cities.

While the nation says it has the world’s best-protected delta, floods aren’t included in property policies for households and most businesses. That follows the Great Flood Disaster of 1953, which killed more than 1,800 people in the southwest of the country and left 72,000 homeless.

Collective Plan

The biggest reinsurers are weighing the flood risks as intensifying competition from pension funds and hedge funds drives down prices in their traditional markets and record-low interest rates depress investment results. Lower-than-average catastrophe claims have also eroded their pricing power as buyers are less compelled to seek protection.

“They can make more efficient use of the capital they have available to cover perils in the Netherlands if there are more risks to cover,” said Bob Reichenfeld, chief executive officer of Aon Benfield Netherlands. “And it results in additional income at a time when the reinsurance market is soft.” Reinsurers, brokers and clients, gathering in Monte Carlo this week to start talks on 2015 contracts, predict further pressure on prices.

To sell Dutch flood policies, reinsurers must persuade insurers to start offering coverage in the first place. Only one, Lloyd’s of London-backed Neerlandse, offers limited flood coverage, with a claims cap of 75,000 euros ($97,100). The largest businesses, with global operations, typically buy catastrophe insurance through a broker or directly from insurers, with payout limits for risks in specific countries.

‘Societal Issue’

Insurers say any effort to address flood risks should include households, an aim that would only be manageable through a collective plan that forced all Dutch to share the costs. An initiative put forward by the insurance industry for obligatory basic flood coverage was rejected last year by the country’s antitrust regulator.

A plan that leaves most homes and businesses uninsured “doesn’t provide a solution for what we see as a societal issue -- making flood risks insurable at an acceptable price for small and medium size companies and consumers,” said Paul Koopman, a spokesman for the Dutch Association of Insurers, a trade group whose members represent more than 95 percent of the industry.

Nationale-Nederlanden, the Dutch unit of NN Group NV, and Aegon are among firms studying options for flood coverage after the collective proposal fell through, though neither have specific plans at this stage, spokesmen for the companies said.

Climate Change

In 1995, more than 200,000 people were forced to evacuate as heavy rains in the Alps drove water levels in the rivers Rhine and Meuse to the highest level on record. A heatwave in 2003 dried out a peat dike in Wilnis, a village in the province of Utrecht about 20 kilometers (12.4 miles) south of Amsterdam, causing it to collapse. About 1,500 people fled their homes.

Flood risks are set to increase as climate change brings heavier rains, rising sea levels and warmer summers, according to the government commission overseeing prevention efforts.

The Dutch are setting aside 1 billion euros a year from 2014 to 2028 to reinforce levies and safeguard fresh water supplies. The government will present measures including new safety requirements for dikes, dunes and dams and plans for river widening to parliament today.

Dutch insurers would be interested in reviving talks if the antitrust regulator revises its stance on a collective, the insurance association said. Swiss Re’s Herrmannsdoerfer said it’s better to bring coverage to a part of the market than not at all.

“Adequate premiums are easier to achieve if there is a broad risk community via a market solution,” he said. “But as long as this isn’t available, we want to start where we can do something, which we see for the time being in the area of commercial and industrial risks.”

--With assistance from Elco van Groningen in Amsterdam.

To contact the reporters on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net; Carolyn Bandel in Zurich at cbandel@bloomberg.net To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net; Mark Bentley at mbentley3@bloomberg.net Frank Connelly, John Simpson

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