ABI accuses Moody’s of misunderstanding Flood Re cap

The Association of British Insurers (ABI) has hit back at Moody’s recent questioning of the structure of the UK Flood Re scheme.

Moody’s criticised a proposed cap on the government’s annual contribution to the scheme and added that it is credit negative for UK property and casualty (P&C) insurers.

Aidan Kerr, head of property at the ABI, said: “This is a fundamental misunderstanding of the way Flood Re will work and we are disappointed that Moody’s did not check their basic understanding of the model with us before issuing this report.

“The £100 million limit would have no impact on Flood Re's ability to pay flood claims to insurers. Flood Re will be designed to pay flood claims up to a 1 in 200 annual loss, a level nearly seven times worse than 2007 which saw flooding resulting in the biggest peacetime recovery effort in the UK since World War II.

“The proposal to limit the impact Flood Re can have on public sector net borrowing to £100 million a year does need to be changed but not because it would affect Flood Re’s ability to pay out. It relates to profit and loss not cash flow and would effectively requires Flood Re to ensure it never makes an annual loss in excess of £100 million as a matter of law, which over the course of 25 years could clearly happen for reasons outside the control of Flood Re.”