UK non-life insurers pay heavy price for weather losses, but credit ratings remain intact

The UK non-life insurance industry has been hit hard this year by three large weather events that in aggregate could add nearly 40 percentage points to its property gross loss ratio for 2007 and more than 10 percentage points to its overall gross loss ratio for the year.

These events will, therefore, 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 continues to keep a close eye on the individual and cumulative impact of these events, but so far has not made any rating changes due to these events alone - which reflects 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, S&P will continue to assess the financial strength of its rated entities in the light of further developments. Moreover, with five months remaining in the year, further large weather events could yet occur that might prompt negative ratings actions.

In January, Kyrill, a storm that hit large parts of the UK in January, was reported by the Association of British Insurers (ABI) in February to have cost insurers £350m. This was followed by floods in June, which the ABI assessed recently at £1.5bn, and then floods in July, and which are still occurring, where the cost has been estimated by the ABI at £1bn.

In aggregate, therefore, the insured losses currently amount to a total of £2.85bn, although it is realistic to expect a final figure in excess of £3bn. The vast majority of these losses will be property related, including business interruption.