Beazley, the specialist Lloyd’s focused insurance and reinsurance underwriting business, has revealed an expected Covid-19 claims burden of $170 million net of reinsurance across its business. We would expect some of that loss to be shared with investors backing the companies third-party capital arrangements.
In a trading update today, Beazley said that its first-quarter result was hit by the financial market volatility from the Covid-19 coronavirus pandemic, reporting a -1% investment loss amounting to -$55 million.
But it is the claims picture that is more interesting, as Beazley has taken a look through its entire insurance and reinsurance book to try and identify classes of business that claims from the pandemic may come from and puts a quantum to them.
The early estimate of losses to Beazley’s first party business from Covid-19 is pegged at $170 million, net of reinsurance, so after reinsurance support is accounted for.
Beazley said that its cancellation book and communicable disease covers are one area it has seen claims, but added that “the frequency of new notifications has been decreasing since the end of March.”
Beazley noted that it has specific reinsurance arrangements to cover this type of business as well.
Across the firms political, accident and contingency division, which includes event cancellation, personal accident and accident and health books, Beazley expects a loss of around $70 million net of reinsurance.
Beazley highlighted that it has had some claims under property policies in the United States, mostly related to business interruption.
Adding that on property insurance, “The majority of our business is written on an ISO form which does not extend cover for Covid-19 but we do provide such protection on some bespoke policies and our aim is to respond quickly to these claims.”
As we explained, wordings really do matter right now and it is these more bespoke policies that could be areas the industry will take a larger aggregation of business interruption claims under property towers, some of which does have the potential to be covered by alternative capital and be backed by insurance-linked securities (ILS) funds or investors.
Beazley said that based on its analysis so far, its marine, property and reinsurance divisions are likely to see Covid-19 claims of around $100 million net of reinsurance.
It is these areas of the Beazley business, property, reinsurance and some short-tailed specialty lines, where some leakage to ILS structures and third-party capital facilities is to be expected.
For example, Beazley has a sidecar syndicate and also its SmartTracker SPA 5623, both of which have backing from third-party capital and take a share of underwriting business from one of its main syndicates.
While these aren’t typical ILS vehicles, being Lloyd’s focused, they enable Beazley to share in its underwriting returns with institutional capital, as well as their underwriting losses.
So for the investors backing these vehicles, there is a chance of sharing in Beazley’s Covid-19 losses.
Across Beazley’s broader reinsurance program it is harder to say where there could be leakage to any ILS markets. But it is certain there will be ILS support in the program and perhaps most exposed to the property and reinsurance line losses the company takes from Covid-19.
On liability risks Beazley said, “It is too early to say what the quantum of claims within our liability classes will be as these will emerge as the impact of the pandemic is fully realised over the next one to two years. We have taken a number of underwriting actions, including the changes to our risk appetite approach mentioned above, which should reduce this impact.”
Andrew Horton, Chief Executive Officer of Beazley, commented, “The events seen in the first quarter of 2020 have been unprecedented. Covid-19 has touched every corner of the globe and the impact of this pandemic is still being assessed. In mid-March we successfully moved to remote working arrangements for all our employees and from an operational perspective there has been no material disruption to our business. We continue to monitor closely all developments relating to the coronavirus outbreak and our priorities remain the wellbeing of our colleagues and delivering an excellent service to our clients.”