UK Floods - Summer 2007 - 14.08.07

25 – 30 June
There were two separately identifiable flood incidents in the UK over late June and July 2007.  The first ‘monsoon’ weather started on 25th June.  It was caused by a stationary pressure system that drew in moisture from the North Sea.  The downpour affected Rotherham, Sheffield, Barnsley and Doncaster city centres where two to four inches fell in 24 hours.  More than 150 flood warnings were issued for the band of country running from Somerset up through the West Midlands to North Wales, and in Yorkshire and Lincolnshire.  There were 26 in Yorkshire alone. It was also feared that the Ulley dam would burst, and that would have been a threat to the M1 and a power station.

The Don, the Dearne and the Idle burst their banks as surface water and defences were overwhelmed by the volume of floodwater. The Don severely flooded parts of Sheffield with levels of up to five feet, workers were trapped, Hillsborough closed and hundreds of people were evacuated.

Further south, in Louth, Lincoln and Grantham there were floods, evacuations and power outages.

Widespread flooding occurred in Hull

20 – 23 July
Another wave of extremely heavy rain caused flooding across central, western and southern England.  Some areas had six inches in 24 hours. 

From Herefordshire in the west to Bedfordshire in the east, nine severe flood warnings were issued and residents of Buckinghamshire, Reading and London were put on flood watch.  The downpours led to landslides, power cuts, evacuations and the rescue of trapped people.  The lack of drinking water in Gloucestershire and the isolation of Tewkesbury were featured in the news.

The insurance industry has quoted various estimates for the total insured loss.  Circa £2bn to £3bn is the range most often quoted.

HUR Comment
In our view these are two separate events which are not likely to trigger major claims in the reinsurance market or, therefore, expose any syndicate’s catastrophe covers to significant claims.  No doubt, as with the negotiations which followed Hurricane Katrina and with the advice of lawyers, the definition of flood and the extent of the coverage will be discussed and settled.

Moody’s commented that the events will have “significant impact” on 2007 earnings, but “strong financial performance and strengthened balance sheets” translate into manageable losses.

Moody’s considers the floods will be two events for reinsurance purposes which mean that insurers are expected to use their retention levels twice to absorb losses before being able to claim.  It seems insurers will bear the brunt of these events.

The ABI has issued figures of 50,000 claims and estimated insured losses at £2.5bn.

Norwich Union which insures one in five homes in the UK and which expects to pay out some £340m in flood claims announced on 2 August that it would raise domestic property premiums by an average of 10%, but it also stated that this move was not related to the recent flood losses.  

Beazley commented in its interim results on 30 July 2007 that its reinsurance team expected losses “to produce insured losses in the region of £3bn (to the market). Based on the limited information available at this early stage we anticipate a modest impact from these events on Beazley.”