Credit rating agency expects gross insured losses in the realm of €5bn in UK, Germany and Netherlands combined

General insurers in the UK will have their profits hit by recent consecutive storms Dudley, Eunice and Franklin, according to credit rating agency Fitch Ratings.

Storm Dudley hit parts of the north east, Cumbria, north Yorkshire and Lancashire on 16 February 2022, while Storm Eunice caused high wind speeds over 18, 19 and 20 February. Storm Franklin, meanwhile, brought strong winds and heavy rain to the UK on 21 February.

Gross insured losses following these weather events are expected to be as much as €5bn (£4.17bn) for the UK, Germany and Netherlands, Fitch Ratings predicted.

Roisin O’Reilly-Smyth, Fitch Ratings’ associate director told Insurance Times: ”Currently, it is hard to ascertain the full extent of insured losses, given the potential further flood claims and whether the storms will be classified as a single or separate event.

”What we do know is that the sector is facing a number of challenges particularly from rising inflation and subdued premium rates. These factors mean profitability is already under pressure in the sector. In addition, underwriting results in the household sector are highly sensitive to weather events.”

Reinsurance could reduce this figure to under €2bn, however.

In most cases, Fitch Ratings does not expect losses arising from the storms to burn through insurers’ earnings, materially erode their capital or affect ratings.

This is because property damage from wind tends to be less costly than the damage caused by floods, so the agency does not expect abnormally high claims.

Ultimate losses

Aggregated losses from all three storms could reach similar amounts to a comparable series of storms in previous years, which cost insurers around £400m.

Fitch Ratings will be updating the market if new information emerges that could affect ratings, particularly as severe flood warnings remain for parts of the UK.

While Fitch Ratings does not expect the recent storms to affect UK general insurers’ credit ratings, the losses will weaken profitability, which is already under pressure from claims inflation and subdued premium rates.

O’Reilly-Smyth cited an example in 2018 the sector reported a net combined ratio (COR) of 107% in domestic and commecial insurancem as a result of large weather losses from the sudden wave of unusually cold weather, flash flooding and heightened subsidence.

For domestic alone, COR was 104%, and 113% for commecial alone in 2018. 

”We believe that the weather losses incurred as a result of these storms, will be manageable for insurers but will dent their weather loss budget, leaving them vulnerable to further weather losses in the latter half of the year, particularly in quarter four when there tend to be further storms and flooding,” O’Reilly-Smyth added. 

On the other hand within Europe, general insurers in Germany and the Netherlands were also hit hard as a result of storms.

Fitch Ratings expects insured storm-related losses of €2bn for Germany and €500m in the Netherlands.