Rating agency expects UK property CORs to worsen by five points

Direct Line Group, Lloyds Banking Group, Aviva and RSA will be the worst hit by claims for the St Jude storm that hit the UK on Monday, says rating agency Moody’s.

The rating agency said it was too early to quantify losses, but noted that reinsurance broker Willis Re had estimated UK insured losses from the storm at between £300m and £500m.

Moody’s said that if losses hit the upper end of Willis Re’s estimated range, St Jude losses could add 1.5 percentage points to the UK general insurance industry’s collective 2013 combined operating ratio (COR).

The agency added that property CORs could deteriorate by as much as 5%, on the basis that property premiums make up 26% of the UK non-life market.

Moody’s said: These losses, combined with recent rate pressures in UK personal property, will lead to lower 2013 profitability in property, which includes personal property – a class of business that has typically been profitable for UK insurers in recent years and that has effectively subsidised insurers’ loss-making motor portfolios.”

According to the latest AA British Insurance Premium Index, average buildings insurance rates were down 5.8% for the 12 months to 30 September 2013.

Contents rates fell 3.8% and combined buildings and contents rates declined 6.6% over the same period.

However, Moody’s added: “Although these losses may help arrest the trend of declining premium rates for UK property risks over the next 12 months, we expect these losses’ wider pricing implications for UK insurers to be modest, with the losses significantly smaller than the approximately £2bn of inflation-adjusted losses arising from the UK’s 1987 storm, where wind speeds peaked at 115mph.”