Coronavirus to be largest industry loss ever: Chubb’s Greenberg & Lloyd’s Neal

Senior insurance and reinsurance industry executives Evan Greenberg, Chairman and CEO of Chubb, and John Neal, CEO of Lloyd’s of London, both agree that the global pandemic caused by the coronavirus could result in the largest industry loss for the sector in history.

Greenberg of Chubb explained during his firms recent earnings call, “I think this event is very likely, more than very likely, the largest event in insurance history when you add it all up, both asset side and liability side of the balance sheet.”

Speaking with the Financial Times, Neal of Lloyd’s said that the Covid-19 pandemic will be “the largest insurance challenge the industry has ever faced, I think by some way.”

Neal added that, in terms of the scale of the industry impact, “You’re into tens of billions, if not hundreds of billions of loss that will be discussed over time.”

Greenberg further explained that a global loss event such as this pandemic is unprecedented and “surreal and catastrophic”, raising the “spectre” of risk and the need to charge a commensurate rate for it.

The industry “understands generally the need to get paid for properly for the exposures take on. I don’t see that trend changing,” Greenberg explained, saying this will only continue to become an increasingly important trend after the pandemic subsides.

Neal said that the insurance and reinsurance industry should expect a loss larger than hurricane Katrina, which is estimated around $50 billion.

He said, “The chances of the market making anything other than a notable loss in 2020 are zero.”

That aligns with estimates for the industry loss, such as Dowling & Partners estimate that the P&C industry loss alone will be between $40 billion and $80 billion.

As well as UBS’ revised Covid-19 industry loss estimate of between $30 billion and $60 billion.

Neal said that industry needs to work with the government on solutions to backstop a potential second wave of coronavirus deaths, highlighting the importance of reinsurance capital arrangements and structures that can share and indeed absorb the risk.

Greenberg meanwhile, highlighted issues related to business interruption and the ongoing legal action to try to force claims under policies where in many cases pandemic coverage was never intended.

“It would damage or destroy the insurance industry in a terrible way,” Greenberg said. Adding, “It would simply take money from one to give to another.”

“Who does that serve?” Greenberg asks. Adding that, “Frankly, it’s unconstitutional.”

Greenberg also highlighted that the role of insurance and reinsurance is absolutely vital in helping the world respond to threats such as pandemics.

“The insurance industry plays an important role in our economic foundation. During this health and economic crisis, we are shouldering our responsibilities and carrying our share of the financial load.

“It’s part of the financial plumbing and it’s critical globally. The insurance industry, I think, is performing quite well and I think will perform very well, in meeting their obligations and our obligations,” Greenberg explained.

The comments of these very senior industry executives, in highlighting the Covid-19 coronavirus pandemic as potentially the largest single insurance and reinsurance market loss event in history, is sobering.

But, at the same time it is easy to see how it aggregates to take that title.

One element that isn’t being discussed in great detail is the tail that a global pandemic loss event will have.

It is likely to be significant and lawsuits and litigation will extend the tail of this loss event even further out.

As a result, it could be years before we have any idea just how large the impact to the re/insurance industry is from the coronavirus pandemic.

The tail of a pandemic loss event and one drawn out by litigation will also have a bearing on ILS funds, who may find collateral trapped for a long-time, even on treaties and reinsurance arrangements where pandemic coverage had never really been envisaged.

Some collateral could be held while litigation rolls on, adding a new social inflationary dimension (a true litigation risk) to this global industry loss event that is quite unlike most catastrophes (natural or otherwise) experienced before.