World’s insurers face $203b in losses from coronavirus

Bloomberg

Lloyd’s of London, the world’s largest insurance exchange, estimates the industry will suffer around $203 billion in losses from the coronavirus pandemic this year.
The projected losses include about $107 billion from underwriting claims, with the rest from insurers’ investment portfolios, Lloyd’s said in a statement. The claims costs are on a par with some of the most catastrophic hurricanes of recent years and could rise further if the virus isn’t contained, Lloyd’s said.
“Once the scale and complexity of the social and economic impact of Covid-19 is fully understood, the overall cost to the global insurance non-life industry is likely to be far in excess of those historical events,” Lloyd’s said.
The pandemic, which has infected at least 4.2 million and killed nearly 300,000, has confronted the insurance industry with its biggest challenge to date. While triggering a deluge of claims related to cancelled events, business interruption and other costs, the outbreak has threatened a global recession that’s put the payment of many household and business insurance premiums at risk.
As economies ground to a halt, many European insurers withdrew earnings guidance and suspended dividends. In the UK, general insurer Hiscox Ltd. was among the first wave of firms to tap public markets for additional capital after coming under pressure to make good on business interruption policies. Lloyd’s estimates that it will pay out in range of $3 billion to $4.3 billion to global customers, on a similar scale to the September 11 attacks of 2001.
Zurich Insurance may take $750mn hit
Zurich Insurance Group AG may have to pay out as much as $750 million this year due to the coronavirus as it grapples with rising claims and volatile markets that have already triggered profit warnings at rivals.
Europe’s second-largest insurer by market value said the claims will hit its property & casualty unit, with $280 million recognized in the first quarter. The estimate is subject to significant uncertainty, Zurich said in a statement on Thursday.
While insurers probably haven’t seen the worst of the Covid-19 crisis Zurich follows rivals Axa SA and Allianz SE in sketching out an outline of the impact. Profit across the industry will be under pressure from lower revenue and higher claims from event cancellations, bankruptcies and business interruptions. Some areas may be a bright spot, such as car insurance where less driving will result in fewer road accidents.
Zurich sees the majority of claims coming from business interruption, Chief Financial Officer George Quinn said on a call. That includes companies that have lost profits due to the virus’s spread and the ensuing lockdowns across much of the world. Zurich also expects virus-related claims from travel, accident and health insurance, he said.
While insurers are used to making large payouts, the coronavirus claims will weigh on profits this year and may be larger than the $700 million losses from hurricanes Harvey, Irma and Maria recorded in 2017.
Germany’s Allianz in April withdrew its earnings forecast for the year due to uncertainty caused by the pandemic, while it’s giant bond-investment unit Pacific Investment Management Co. saw its worst outflows in five years when the onset of the coronavirus pandemic sent retail clients fleeing.
French competitor Axa predicted a material dent to 2020 earnings. The outbreak hit the industry “like a meteorite,” Allianz Chief Executive Officer Oliver Baete said, with business disruptions across industries fueling claims while chaotic markets cause investment values to tumble. Axa has said it expects total potential event cancellation claims related to Covid-19 is in the mid-triple digit million euros, adding that it is too early to estimate business interruption claims.

Zurich has moderate exposure to business interruption claims in the Europe, Middle East and Africa and North America regions, though risk over canceled events is limited, the company said in a presentation. The company expects a significant fall in premiums this year at its travel insurance business with flights grounded and holidays in much of the world on hold.
Zurich said revenue and earnings will also be hit by poor financial markets and weaker economies. Gross written premiums at the property and casualty unit rose 5% in the first quarter from a year earlier to $9.68 billion.
UBS analysts expect insured losses from the virus to be in a range of $30 billion to $60 billion. While the bank remains confident European insurers’ balance sheets can withstand the hit, the level of uncertainty remains high, analyst Jonny Urwin wrote last month.