Standard & Poor's predicts that the current severe weather events will probably leave the property sector's overall underwriting result in the red for the year.
The UK insurance industry's property gross loss ratio for 2007 could surge by nearly 40% after being hit by three large weather events this year.
Standard & Poor's Ratings Services has predicted that the industry's overall gross loss ratio for the year could also go up by more than 10% as a result of flooding and storms, which will serve as the principal cause of what will be a significant loss in the industry's property line of business for 2007.
S&P said it would continue to keep a close eye on the individual and cumulative impact of the events, but so far has not made any rating changes due to these events alone.
This, it added, reflected the generally robust capital adequacy and healthy recent underwriting performance of its rated entities.
"Nevertheless, as the full extent of losses from the last event in particular is far from being ascertained, Standard & Poor's will continue to assess the financial strength of its rated entities in the light of further developments.
“These events will be the principal cause of what will be a significant loss in the industry's property line of business for 2007, and will probably leave its overall underwriting result in the red for the year.
Standard & Poor's Ratings Services
"Moreover, with five months remaining in the year, further large weather events could yet occur that might prompt negative ratings actions," the agency insisted.
Three large weather events have occurred this year in the UK: Kyrill, a storm that hit large parts of the UK in January, was reported by the ABI in February to have cost insurers £350m; floods in June, which the ABI assessed recently at £1.5bn; and floods in July, and which are still occurring, where the cost has been estimated at £1bn.
"The profitability of the industry will undoubtedly be severely hit by these events," S&P said.
"Assuming that all losses are property related, Standard & Poor's estimates that £3bn of aggregate loss will add approximately 28 percentage points to the gross loss ratio for the industry's property line of business, and a £4bn loss 37 percentage points."