Profits of the Co-op’s financial services business fell by more than a half after floods that devastated parts of England this summer left the group with its biggest weather-related insurance bill for 60 years.

Co-operative Financial Services (CFS) said yesterday that claims for damage in the June and July downpours hit £55 million, sending its general insurance business £32.3 million into the red in the first half of the year.

However, David Anderson, the chief executive of CFS, said that the Co-op would not introduce an across-the-board increase in premiums, as other insurers have done. “There’s unquestionably a change in the climate that will affect claims in the future, but it does not mean we should suffer a kneejerk reaction and increase premiums,” Mr Anderson said.

CFS admitted yesterday that improvements to its claims-handling process were “severely tested” after more than 5,000 policyholders with home insurance submitted flood-related claims. The group covers nearly one million homeowners.

The insurance business’s combined ratio, excluding the flooding, fell by 2.9 per cent to 103.2 per cent. A ratio below 100 per cent means an underwriting profit.

CFS profits in the six months to July 28 fell by 54.6 per cent to £22 million, despite strong lending growth by the Coop Bank. It refunded £6.3 million of overdraft charges. Stripping out the flood claims, investment fluctuations and other one-off items, pretax profits rose 16 per cent to £92.9 million.

Mr Anderson said that the “encouraging” performance meant that CFS was well placed in its transformation programme. The group is investing £250 million to improve product distribution. CFS is also cutting costs by £100 million, and announced plans two months ago to shed 1,000 jobs in a move labelled “brutal” by banking unions. Amicus, part of the merged union Unite, demanded consultation with the bank.

Mr Anderson insisted yesterday that no redundancies would be made in customer-facing roles and that none of CFS’s customer-facing operations would be sent offshore.

Pretax profits of the Co-op Bank were £800,000 higher at £45.5 million, with bad debts down by £5 million to £53.2 million.

This summer the bank tightened credit and lending criteria, including a reduction in credit card limits on high-risk accounts. CFS said this should offset factors such as rising interest rates, inflation and insolvency. Customer deposits rose by 9 per cent to £8.2 billion.

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