By Richa Naidu
Feb 24 British insurance premiums could rise if
the country's government-backed Flood Re insurance mutual comes
into effect next summer, said Rob Childs, the chairman of
Lloyd's of London insurer Hiscox Ltd.
The terms of Flood Re, a mutual fund through which insurers
will offer subsidised cover to 350,000 households in flood-prone
areas, were decided in late June by the Association of British
Insurers (ABI) and the government.
"They're going to make a levy on all homeowners, on all
people who buy home insurance. And that, of course, could then
result in increased premiums on the whole in the UK," Childs, a
member of the Council of Lloyd's, told Reuters.
The scheme is set to exclude Britain's most expensive homes
from subsidised cover. However, these homeowners will be
required to pay the 2.2 percent levy on home insurance.
"You would expect that if the insurers had losses, they
would push the premium up in any event and they would
(additionally) have to load it by 2.2 percent," Peel Hunt
analyst Mark Williamson said.
The fund has received renewed attention after a series of
unusually heavy storms that began in December - particularly in
the south of England - flooded thousands of homes, damaging
transport links and shutting down businesses.
Hiscox, which reported its full-year results on Monday, said
it expected to reserve 5 million pounds to cover flood-related
claims for January and February, having already set aside 11
million pounds for December.
The company's London-listed stock was down as much as 1
percent at 650 pence on Monday morning, about 36 percent below
its intrinsic value of 886.2 pence, according to Thomson Reuters
StarMine's model of how much a stock should be worth when
considering expected growth rates over the next 15 years.
'UNFAIR AND UNWORKABLE'
Hiscox, which underwrites cover for oil rigs, kidnappings,
fine art and vintage cars, among others, said it found the Flood
Re plans that were hammered out in late June "unfair and
It said the scheme would exclude Britain's most expensive
private homes, residences built after 2009, and rented and
leased properties from subsidised insurance, but that these
residents would still need to pay the levy to fund Flood Re.
"We just think that's taxation without representation,"
Childs said, adding that Hiscox had discussed its concerns with
both the ABI and the government. "A plan that excludes one-sixth
of homeowners is unlikely to be equitable."
ABI spokesman Stephen Sobey said Hiscox had made repeated
requests to have this addressed.
"The government decided that it would be unfair for
customers in smaller homes to have to subsidise the largest
private homes," he said.
The underwriter posted a 12.4 percent rise in full-year
profit to 244.5 million pounds ($408 million) as it recorded
fewer claims during a benign U.S. hurricane season.
It also said its reinsurance business would continue to
shrink in 2014 after it reported a decline of about 16 percent
in its reinsurance rates due to aggressive competition from both
traditional and new sources of capital.
Net premiums rose 7 percent to 1.28 billion pounds.
Investment returns dropped to 1.9 percent from 3.1 percent
as Hiscox - like fellow European insurers including Allianz
and Lancashire - took a blow from ultra-low
interest rates in developed countries.