A.M. Best Briefing: Flood Losses to Hit U.K. Insurers’ 2015 Earnings

A.M. Best believes that flooding in the final month of the year will put pressure on the 2015 earnings of U.K. property insurers. Initial estimates of combined insured losses from Storm Desmond, which hit the United Kingdom on 5 December 2015, and Storm Eva, which followed on 26 December, range from GBP 900 million to GBP 1.5 billion. There will be further losses from Storm Frank, which brought heavy rainfall to already saturated areas of the United Kingdom on 29 December. Economic losses are likely to be much higher.

In its new Best’s Briefing, “Flood Losses to Hit U.K. Insurers’ 2015 Earnings,” A.M. Best states that it expects insurers to withstand these losses, with a moderate impact on earnings but little effect on balance sheet strength and hence ratings. Catherine Thomas, senior director, analytics, said: “The main competitors in the U.K. insurance market tend to be well diversified by line of business and geography. Furthermore, weather-related claims experience in the first 11 months of the year was relatively benign and the U.K. insurance market had been expecting good results for household and commercial property business for 2015.”

For most insurers, losses from each of the individual storms are unlikely to exceed per event retentions before reinsurance. A.M. Best notes that U.K. insurers have been able to take advantage of weak conditions in the global reinsurance market to achieve favourable pricing and contract terms. Catherine Thomas added: “For instance, hours clauses, which define the time period during which claims resulting from a given occurrence can be recovered as single aggregated loss, have been extended. As a consequence, insurers may be able to aggregate losses from two of the storms, so that excess of loss programmes are more likely to attach.”

The briefing also notes that while the implementation of Flood Re in April 2016 should support a smooth transition toward more accurate risk-based flood pricing in the United Kingdom, recent events have reignited concerns regarding the adequacy of flood defences in the United Kingdom and the level of government capital expenditure on flood prevention. It has also highlighted the need to encourage good flood risk management by high-risk policyholders and the importance of restricting building in areas prone to flooding.

To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=245011.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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