The impact on reinsurance pricing from floods that hit England this summer, causing an estimated $6.2 billion insured loss, is not expected to be significant, a brokerage firm said.
Guy Carpenter & Company, LLC, said that finding is contained in its new report "Wrong Type of Rain: Impact and Implications of 2007 UK Floods."
The flood damage cost "was mostly absorbed by the U.K. insurance industry, with only a relatively small proportion of the losses ceded to reinsurers," said Dickie Whitaker, Guy Carpenter managing director.
Flooding occurred in northeastern England in June and central and southwestern England in July. In total, more than 130,000 insurance claims were submitted, Guy Carpenter said.
The report includes a meteorological summary, detailed event overview, and information on insured losses and modeling solutions.
In addition, the report reviews the larger role of the insurance and reinsurance industries and the increasing interest in catastrophe bonds and other alternative risk transfer (ART) techniques for managing flood risks. Planned floodplain development in the U.K. and potential long-term climate change implications are also discussed.
Mr. Whitaker noted that the flooding discussed in the report was the worst the U.K. had experienced in 60 years.
In addition to observing that the impact on reinsurance prices should be minimal, the report said additional sideways cover is expected to be purchased to absorb the increased frequency arising from higher retentions.
In order to mitigate the possibility of more severe events in the future, interest in catastrophe bonds and other capital market solutions such as index-linked products is expected to increase, Guy Carpenter said.
Mr. Whitaker commented, "There are more than two million homes currently at risk from coastal or inland flooding in the U.K., with plans to build three million new homes by 2020–including a significant number on known floodplains. Coupled with changing weather patterns and rising property values, this means that the level of flood risk in the U.K. looks set to increase, highlighting the importance of better managing exposure to flood."
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