Storm could add 7 points to UK home combined ratio - Fitch

Insured losses for Desmond, which are estimated to be between £150m and £350m, are equivalent to between 3 and 7 percentage points of the UK’s household insurance market in 2015, according to Fitch.

Fitch expects the losses to be ‘manageable’ for insurers, but said insurers’ ability to absorb further losses has been weakened by Desmond.

Household premiums, which are at a five-year low, will continue to fall, but at a slower rate next year as insurers become more cautious due to weather-related losses. 

The rise in the Insurance Premium Tax and the cost of Flood Re will be passed onto the customer, which will be another reason for the slowing rate of price declines. 

Fitch said: “The negative impact on insurers’ earnings from Desmond is likely to be limited because the storm’s impact was relatively localised and outside more densely populated areas.

“But the scale of the insured losses will depend on how many businesses have been affected. If there has been significant business interruption, insured losses could rise above the current loss estimates.

“Losses from the storm even within the bounds of current estimates, coupled with further significant loss events over the winter season, could push the sector’s personal property combined ratio above 100%.

“This will keep earnings under pressure, due to the significant competition in the market combined with subdued investment returns.

“Desmond has also raised questions about the adequacy of flood defences, with some installed just a few years ago not proving fully effective against a storm of this intensity.

“Uncertainty about future government capital expenditure to reduce flood risk could expose insurers to additional losses in the short term. In the long term, it could push up buildings and contents insurance premiums for all UK households if the frequency of severe weather events increases.”