Ratings agency Standard & Poor’s said today that, at the current levels of insurance industry loss estimate, the financial impact of recent UK floods appears unlikely to result in any insurer rating downgrades.
S&P said that UK non-life insurers are likely safe from any negative rating action currently. It cites estimates of insurance industry wide retained losses as being in the range of £500 million to £1.2 billion.
As Artemis reported yesterday, insured loss estimates for the UK floods have crept higher, with investment manager Credit Suisse Asset Management has said that it believes the insured loss could reach $2 billion or even higher given the extent and duration of the UK floods, which is right on the £1.2 billion mark.
However analysts from Bank of America Merrill Lynch said that they expect insurers will face a loss of around £1.5 billion, nearly $2.6 billion.
So opinions continue to diverge on the final impact to the insurance sector and with more rain forecast for the next week across the UK, while water levels in rivers and the groundwater remain so high, there is no guarantee that the flooding situation won’t worsen.
S&P said that at the high-end of estimates, £1.2 billion or $2 billion, it would equate to a 4% increase in the combined (loss and expense) ratio for UK insurers. S&P said that it would view a loss of this size as an earnings event rather than a capital event.
S&P notes that insurers may have a hard time increasing rates after such a loss, due to expected political pressure to help out flood hit homeowners by not upping their premiums. S&P noted that even if political pressure made it tough for insurers to recover the full extent of their flood losses in this way, it would not change its assessment of the U.K. non-life sector’s industry and country risk.
At the currently estimated level of losses reinsurers are unlikely to feel much impact of the floods, although there could be some layers which see small impacts. On top of the severe European windstorm season though, the impact to Europe’s insurers will be growing.
Read our other stories about the ongoing UK floods and the potential insurance losses: