Floods won't hurt UK insurer ratings, says Moody’s

The recent UK flood events in late June and mid-July across selected areas of the north of England and south England / Midlands are likely to have no impact on UK non-life insurers’ credit ratings, according to Moody’s.

Although the two events look set to have a significant impact on 2007 earnings, strong financial performance and strengthened balanced sheets ensure that the losses are manageable for the industry overall and for key players, said the rating agency.

The report explains the difficulties of reliable claims estimation from such events.

However, based on ABI estimates, a gross cost of at least £2.5bn is likely.

Dominic Simpson, a Moody’s senior credit officer and author of the report, said: "The spread of this cost throughout the industry will, ultimately, depend on the lines of business written by each insurer, with Moody’s anticipating the majority of flood-related claims to come from property (personal and commercial) and business interruption lines."

In terms of the impact of reinsurance, Moody’s said that the two flood events (end June and mid-July) were to be treated as two separate events by reinsurers, and therefore primary insurance companies were likely to use the extent of their retention levels twice in order to initially absorb the losses, and would also incur costs for the reinstatement of reinsurance protection.

Simpson added: "The retention levels of reinsureds have generally been increasing in recent times. Consequently, although reinsurers will face some cost from these events, Moody’s expects primary insurers to bear the brunt of the total gross claims."