As the U.K. continues to deal with a winter of historic flooding, strong balance sheets and an otherwise light year for bad weather will allow insurers to absorb the losses, A.M. Best concluded in a new report.
A.M. Best said that flooding in the final months of 2015 will have at least a moderate impact on the 2015 earnings of U.K. property insurers. Three specific storms are to blame, the ratings entity noted in its latest briefing: Storm Desmond, which hit the U.K. on Dec. 5, Storm Eva, which landed on Dec. 26, and Storm Frank, which brought further heavy rains and flooding on Dec. 29, to many of the same locales damaged in the previous two storms.
While losses/insured losses are still being tallied from frank, A.M. Best said that insured losses from Desmond and Eva will likely hit between $1.3 billion and $2.2 billion. The final number will not be the end of the world, A.M. Best said in its report.
“A.M. Best expects insurers to withstand these losses, with a moderate impact on earnings but little effect on balance sheet strength and … ratings,” the report noted.
A.M. Best asserted that weather related claims experience in the first 11 months of 2015 was relatively light in the U.K. insurance market, with expectations of good results for household and commercial property business. Underscoring that point, the calendar year combined ratio for the U.K. property sector was 93.1 in 2014 and 2013.
Expectations are that losses from each of the storms won’t exceed per event retentions before reinsurance for most insurers, A.M. Best said. Another benefit for insurers: hours clauses – the time period during which claims resulted from a given occurrence can be recovered as a single aggregated loss, have been extended for as long as 21 days. According to A.M. Best, this means that insurers “might be able to aggregate losses from two of the storms, so that excess of loss programs are more likely to attach.”
A.M. Best added that another pending addition to the U.K. market should help with future flood claims. That would be Flood Re, which launches in April 2016 as a non-profit reinsurance entity to be funded through a policyholder levy.
As envisioned, Flood Re will limit the cost of flood insurance for the highest-risk properties and also cap premiums (though commercial property will not be covered by this). A.M. Best said that Flood Re should help the U.K. market evolve into more accurate risk-based flood pricing, and could help keep the market stable if there were any gaps in affordable home insurance that erupted.
With that in mind, however, A.M. Best said that concerns remain about U.K. flood defenses and how much the government will spend to prevent floods in the future.
Source: A.M. Best