Insurers are “less prone” to natural catastrophe events such as floods in Ireland than in other countries, credit rating agency Standard & Poor’s has said.

A new S&P report, which found that Irish-based insurers face an “intermediate” level of risk, comes as they come under Government pressure to change how it insures homes and businesses protected by temporary flood defences.

After weeks of serious flooding in the midlands and other parts of the State, the insurers have been heavily criticised for providing a lower level of cover in areas protected by demountable or temporary defences than in areas protected by permanent defences.

In its report on the Irish property and casualty insurance sector, S&P said its overall assessment of general conditions in the market was comparable to developed markets such as Britain, Spain, the US and others.

Profitability

The agency added, however, that profitability in the Irish market was negative. “Our assessment of profitability also reflects the more volatile nature of the Irish insurance market compared to several other European peer countries, including the UK, Italy, and Spain.”

Citing a higher frequency of motor and liability claims as economic growth picks up, S&P said Irish insurers had a difficult year in 2015 and were likely incur losses for both 2015 and 2016.

Although the rating agency said Storm Desmond in early December was the only “severe” event last year, it was quickly followed by Storm Eva and Storm Frank.

Citing key property insurance players, S&P said “large” claims in 2015 had been in line with historic norms. The value of such claims exceeds €1 million.

“On balance, we consider that the Irish market is less prone to major natural catastrophe events than other [property and casualty] insurance markets,” said S&P.

“Freezing temperatures, storms, and floods have depressed underwriting results in previous years ... but have never presented a sustained challenge to capital adequacy.

“Generally, such events have contributed one or two percentage points to the gross market combined ratio over the past 15 years. Reinsurance protection has helped contain this risk for insurers.”

Flaws

The report went on to say that the Oireachtas committee on the environment published a report in December indicating that there are flaws in the geo-coding of areas for flood risk that prevent homeowners from getting insurance.

“The report says the flood insurance issue needs a ‘systematic investigation’ by the Central Bank to determine its extent and to be able to advise on appropriate measures,” said S&P.

“We do not think this would dramatically affect the profitability of the property insurance market.”

Citing solid propsects for economic growth in Ireland, S&P said “country risk” for insurers was low. Product ris was neutral, it added.

“Unlike in the UK, there has not been a catastrophic increase in motor bodily injury claims, but we assess the risk from unpredictable settlements as intermediate.

“Our assessment is partly due to a reduction in the discount rate used in claims calculations and the potential for courts to order periodic payments orders.”

S&P said motor claims have been rising due to increased economic activity, resulting in more traffic, congestion and accidents.

“Companies have observed increases in private motor injury claims frequency ranging from 4 per cent to 12 per cent from 2013 to 2014, with an average increase of just over 8 per cent.”