Foul U.K. Weather Spells P-C Underwriting Loss For '07

A series of catastrophic weather events in the United Kingdom will spell underwriting losses for property-casualty insurers there in 2007, potentially adding 10 percentage points to the gross loss ratio for the p-c industry, one rating agency said.

Standard & Poor's said the three storms have resulted in an estimated $5.77 billion in losses, the largest loss so far resulting from flooding in June, at $3 billion. July floods are running a close second at more than $2 billion. European windstorm Kyrill, which struck the U.K. in January, cost insurers $709 million.

The final figure from the three events, Standard & Poor's said, could surpass $6 billion, especially with five months to go in the year.

The vast majority of these losses are property related, including business interruption, but auto and liability losses are also expected.

Historically, the worst weather loss insurers suffered in the U.K. was from high winds in the early 1990s that resulted in $6.68 billion in losses, the rating agency out of London added.

A $6 billion loss would add approximately 28 points to the gross loss ratio for the industry's property line of business, and an $8 billion loss would add 37 points. Adding losses to reinsurers, the rating agency said "it is almost certain that the recent run of underwriting profitability for United Kingdom property risks will have been eliminated and turned into a significant net loss for 2007."

Nigel Bond, an analyst for Standard & Poor's, explained that combined ratio figures are not available. He said the property gross loss for 2005 stood at 51 and 2006 figures are not available. The rating agency calculated that the property line of business will see 40 percentage points added to its gross loss ratio this year.

Standard & Poor's said it is keeping a close eye on insurers, but so far has not made any ratings changes. The rating agency said the industry has "robust capital adequacy" and its underwriting performance has been healthy.

Risk Management Solutions in London said today that the storms in June and July could cost insurers between $5 billion and $6.6 billion in total.

RMS said the losses could be higher than insurers initially expected because 70 percent of the flooding occurred off the major floodplains.

"Many insurers assess their flood risk exposure based on maps that only take into account river and coastal flooding," Claire Souch, senior director of model management at RMS, said in a statement. She added that maps need to be updated to account for poor drainage or minor streams.

While fewer residents are affected by the July floods than those in June--15,000 compared with 27,500 respectively--average claims are expected to be higher because the affected properties are higher in value and more of the damage will be insured. Commercial claims, however, will be less because the businesses are smaller. Demand surge will also increase costs due to shortages in equipment and supplies.