By Richa Naidu
Feb 24 (Reuters) - 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.
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 unworkable".
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.