Investors offered a punt on London flooding

An insurance firm is offering investors the chance to bet against a catastrophic flood devastating London.

German insurer Allianz has issued the bond to protect itself against the risk of flooding due to the levels of claims from homes and businesses which could arise from such an incident.

London’s Thames Barrier currently protects the capital against flooding up to a once in every 2,000 years catastrophe.

But the Environment Agency is also concerned over the increasing risk to London from rising sea levels and global warming and will consult later this year on its Thames Estuary 2100 plan to improve the capital’s flood defences.

Insurance firms could be hit for up to €1bn by a London flood, depending on the scale of the incident and the areas affected, industry sources have estimated.

Alex Theis, chief executive of Allianz Global Corporate & Specialty, said the new bond would help the company offset the insurance risk of natural disasters.

He said: “This is a flexible tool and an important step in risk transfer mechanisms of the future enabling us to manage and optimise our exposure to catastrophic events.”

A spokesman for the Association of British Insurers (ABI) said of the new bond: “It does show that the industry does take the threat of flooding very seriously, but we also want to see sustained Government investment in flood protection as well.”

The ABI added that there are 570,000 homes and businesses at “very high” risk of flooding in the UK.

The bond covers flood risks across the rest of the UK, as well as potential earthquakes in Canada and the US, excluding California.

It was developed after risk modelling from US risk management firm RMS and the creation of an “index” of flood damage by London-based consultant Halcrow.

The new issue of the bond is worth $150m (€112m) and was oversubscribed by investors, who will gain a 3.1% annual return. Allianz has plans to issue €1bn (€750m) of the bond in future.