U.S. and global primary insurance carrier and reinsurance company Chubb, has pre-announced a massive just over $1.8 billion hit from global catastrophes and the Covid-19 pandemic for the second-quarter of the year, setting the stage for other large loss hits from major players.
Chubb had previously said it would categorise the losses it suffered from the Covid-19 coronavirus pandemic as catastrophe losses, saying it expected a meaningful Q2 earnings impact.
Now, we see just how meaningful that is, with $1.807 billion of pre-tax catastrophe losses ($1.51 billion after tax), largely coming from the pandemic at $1.365 billion ($1.157 billion pre-tax).
In addition, Chubb has suffered $312 million pre-tax of other natural catastrophe losses of ($249 million after tax), which is largely due to severe weather losses in the U.S., while the civil unrest in the U.S. has driven a further $130 million of pre-tax losses ($104 million) for the carrier.
On the pandemic, Chubb said that the figure reported “represent the company’s best estimate of ultimate insurance losses resulting directly from the pandemic and consequent economic crises.”
Chubb noted that all of the losses reported are net of reinsurance recoveries it has been able to make, include reinstatement premiums and come from across the global carriers commercial and personal property and casualty, A&H and life insurance businesses, as well as its reinsurance business around the world.
The Covid-19 pandemic losses break down as $605 million of losses from entertainment and commercial property-related business interruption and accident and health (A&H) products including travel insurance products; $553 million of losses from liability insurance products, including professional liability (directors and officers, employment practices, professional liability, etc.), workers’ compensation and other liability-related products; and $107 million of losses from insurance credit exposures including surety, political risk and trade credit.
The majority of liability and credit-related insurance related losses are based on incurred but not reported (IBNR) reserves. Chubb said it has also included a $100 million IBNR provision to account for additional uncertainty in the loss estimates from its property, casualty and credit-related exposures, given the pandemic is such an “unprecedented event.”
A huge 71% of Chubb’s Covid-19 loss estimate derives from its North American Commercial P&C Insurance portfolio, with another 28% from its Overseas General Insurance book, the company said.
Chubb also said it will reduce its Q2 net written premiums by roughly $184 million, which it said reflects its estimate of “the exposure adjustments on its in-force policies that have and will result from the impact of economic contraction.”
Chubb also reported another hit for Q2, with U.S. child molestation including reviver statute-related claims estimated at $259 million pre-tax ($205 million after tax).
The majority of equity analysts see the pre-announced burden from Covid-19 as above their estimates.
Morgan Stanley analysts said it is “significantly higher than our previous catastrophe estimate of $633m, which included $350m of COVID-19 losses.”
KBW analysts said, “We think Chubb’s conservative loss estimate largely addresses any COVID-related overhang, positioning it to benefit from sustained specialty commercial rate increases.”
While Credit Suisse analysts said the total estimate for Covid-19 pandemic related claims is 126% higher than its estimate.
Chubb sets the stage for other major carriers, particularly in the U.S. and may be causing analysts to reevaluate the loss estimates they had been anticipating from the coming earnings season.
There’s no clarity at this stage where Chubb may have tried to call on its reinsurance protection to assist in paying these claims, but it’s safe to assume the impacts will be felt widely in the reinsurance market as loss notifications begin to rise around this earnings season.
It’s also safe to assume that one place Chubb is almost certain to find reinsurance 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 meaningful share of the re/insurers losses and without a doubt, the third-party investors backing ABR will bear some of the burden of Covid-19 losses for the carrier.
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.
Any losses that could flow to third-party capital backed reinsurance and perhaps ILS fund sources of protection that Chubb has in place would be expected to come from the shorter-tailed component of the announced Covid-19 losses, largely on the commercial property side it would seem.