Analyst: How Cost of storms put pressure on insurance dividends

The devastating floods battering Britain this winter could put dividends at one of the biggest insurers under pressure, according to new research.

With dozens of flood warnings still in place in the wake of Storm Frank, thousands of households and their insurers are already counting the cost of record-breaking rainfall in the past few months.

Analysts at Bernstein said that, based on early estimates of up to £1.5bn of insured damage from the storms before Frank, the insurance companies RSA, Direct Line and Aviva are likely to bear the brunt of the losses.

For RSA, the losses from the UK storms so far could be between £35m and £120m, even after recouping some of the cost from the firm’s reinsurance policies, Bernstein estimated.

At the top end of the forecast, the losses would represent 3pc of RSA’s overall value, the analysts added. The storms worsen an already tough six months for the group, following a £16m loss from the Chilean earthquake in September.

“As a result, investors should brace for a more modest dividend for this period,” the analysts said.

RSA resumed dividend payments with a 2p-per-share payment in February 2015 after an 18-month hiatus while the company addressed accounting problems in its Irish division. In September, the firm announced a 3.5p interim dividend for 2015.

The company was the subject of an unsuccessful £5.6bn takeover bid by Zurich this year, during which questions were raised about RSA’s £7.6bn pension liabilities, although the firm has continued to post recovering underlying earnings.

“It is far too early to speculate on the scale of losses to RSA. We have a comprehensive reinsurance programme in place which limits losses for large and catastrophe claims,” said an RSA spokeswoman.

Aviva, meanwhile, is expected to take a hit of between £75m and £160m, but because of its larger size the impact will be less severe, topping out at about 1pc of its overall value.

People enjoy a drink outside the White Hart Hotel in Dumfries

Direct Line, the country’s biggest home insurer, will also face large payouts, but Bernstein does not cover the company’s financial performance. Zurich, the Swiss insurance giant, is the UK’s largest commercial property insurer.

The losses for insurance companies are mitigated by reinsurance, or policies they take out with other insurers to spread the risk of catastrophic events such as hurricanes and plane crashes.

Meanwhile, the Association of British Insurers tried to reassure victims of flooding that they can throw away damaged possessions and still be reimbursed.

“As the clean-up begins after the devastating flooding that Storms Eva and Frank have inflicted across the UK, insurers understand that people will want to get rid of their ruined possessions as soon as possible,” said James Dalton, ABI’s director of general insurance policy. “This is why insurers will take a pragmatic approach and advise you on how best to dispose of flood damaged items as quickly as possible.”

Source: Telegraph.co.uk