Chubb classifies Covid-19 as a catastrophe event

Chubb, the U.S. and global primary insurance carrier and reinsurance company, is classifying the Covid-19 pandemic as a catastrophe loss event and expects it to have a meaningful impact on earnings in the second-quarter.

In announcing its first-quarter results yesterday, Chubb revealed just $13 million of pre-tax losses due to the impacts of the Covid-19 coronavirus pandemic.

Meanwhile, some $224 million of pre-tax catastrophe losses came from severe weather events during the quarter.

But most interesting is the fact that Chubb is classifying its losses due to the Covid-19 pandemic as a catastrophe event, something that may point to an ambition to find at least some level of support for these claims under its catastrophe reinsurance program.

Chubb said that its losses from Covid-19 “will be tracked as a separate ongoing catastrophe event.”

Further explaining that it expects to report a much higher level of Covid-19 catastrophe losses in Q2.

“While there was no significant impact on core operating income in the first quarter relating to the COVID-19 global pandemic, the company anticipates that this global catastrophe event will have a meaningful impact on revenue as well as net and core operating income in the second quarter and potentially future quarters as a result of an increase in insurance claims due to both the pandemic and recessionary economic conditions,” the company said.

Evan G. Greenberg, Chairman and CEO of Chubb, commented on the quarters result, “Chubb had a very good first quarter that demonstrated the underlying health and strength of our company as we entered this period of the COVID-19 global pandemic. Core operating income per share of $2.68 was up 5.5% from prior year, and our underwriting results were highlighted by a P&C combined ratio of 89.1%. We grew P&C premiums globally 9.3% in constant dollars as we continued to benefit from improved rate to exposure, particularly in our commercial P&C business – a positive and necessary trend that continued into April.

“The coronavirus is delivering a severe blow to the global economy. How long and how deep is unknown. It will have a major impact on the global insurance industry in terms of both losses and revenue. For Chubb, we expect our premium growth momentum to be impacted for a period as insurance exposures in important areas shrink. This will be an earnings event for our company; our balance sheet and liquidity remain strong.

“Insurance has an important role to play in society and in the economy, and at Chubb we are doing our job to support our customers, employees and business partners, all of whom rely on us. We are operating day to day at a very high level globally and I am confident Chubb will weather this difficult time and emerge stronger.

“As the U.S. gains better control over the virus and we look forward to reopening the economy, the ability to test, digitally trace and isolate is fundamental to suppressing the spread of the virus while returning to more normal economic and social activity. It is also important at this time that we do not add unnecessarily to the great uncertainty we are already experiencing. To that end, we should prevent self-inflicted harm from government attempts to force insurers to retroactively pay uncovered business interruption claims, which is simply unconstitutional.”

Of course, there is no guarantee Chubb will find any coverage for its Covid-19 claims under a catastrophe reinsurance program, more likely under its other reinsurance arrangements. But it is interesting that the company classifies the pandemic as such, being the first company we’ve seen to do so.

As we explained previously, it is insurance or reinsurance policies and programs that lack exclusions, or have poorly worded exclusions, that may find themselves carrying any claims through to the reinsurance and ILS market.

There have been legal efforts to gain coverage under catastrophe reinsurance programs in some regions of the world such as Canada and as we wrote yesterday the Pennsylvania Supreme Court has ruled that the Covid-19 pandemic constitutes a “natural disaster”.

Chubb calling the pandemic a catastrophe is not a precedent, but it does reflect the way the virus outbreak is viewed by the industry as a whole and the potential impacts and losses that may be felt from it.

Covid-19 has not been designated a catastrophe event by any third-party reporting or designation agency, as they don’t tend to have a relevant category for it to fit into.

Chubb clearly sees the impacts of Covid-19 as catastrophic, potentially very as Greenberg highlights in his comments on efforts to force the industry to pay business interruption claims.

While the classification of Covid-19 may not actually have any bearing on where Chubb can claim on reinsurance support, one place it is certain to find support is its own total-return and third-party capitalised reinsurance joint-venture ABR Re Ltd.

ABR Reinsurance Capital Holdings Ltd. (ABR Re) was launched by Chubb as a total-return or investment oriented reinsurance joint-venture vehicle, financed by third-party capital investors and established in a partnership with asset manager Blackrock, who provides the investment strategy for the vehicle.

ABR Re has become one of the largest sources of reinsurance capacity for Chubb, taking a significant share of the re/insurers losses and without a doubt, its investors will bear some of the burden of Covid-19.

In fact, given the alternative, higher risk, investment strategy ABR Re follows, it could find it takes a significant hit on both sides of the balance-sheet, being less conservative in its investment strategy than Chubb.