COVID-19 industry loss estimate lowered to $40bn – $60bn by Berenberg

Analysts at investment bank Berenberg have refined their insurance and reinsurance industry loss estimate for the COVID-19 pandemic, lowering it to an expected range of $40 billion to $60 billion of losses.

Previously, the Berenberg equity analyst team had forecast that industry losses would come in below where some had expected the insurance and reinsurance market’s claims burden from the pandemic would sit.

They said global claims for the insurance and reinsurance industry due to the Covid-19 pandemic would be manageable, estimating a range from $50 billion to $70 billion for the total bill back in June 2020.

That sat far below the estimates made by some other parties, including Lloyd’s of London which pegged the potential total impact to just the non-life insurance industry from the Covid-19 coronavirus pandemic in the 2020 underwriting year alone as potentially as high as $107 billion.

A range of analyst reports had previously suggested a broad range consensus for a pandemic industry loss from $30 billion to as much as $100 billion.

At this time, the current reported COVID-19 loss toll, based on realised and incurred but not reported (IBNR) has only just reached $30.4 billion, according to the data collected by PeriStrat and reported on our sister site Reinsurance News.

While the new wave of COVID-19 lockdowns are worse than had been anticipated, the analysts are confident that there won’t be enormous surprises to come.

Saying, “We continue to believe that total industry losses will be much lower than originally feared at the peak of the crisis last year and now believe a range of $40bn-60bn might be more realistic.”

There are still going to be challenges to come for some in the industry and in particular those that did not reserve as robustly from the start of the pandemic may find themselves having to lift provisions for potential losses.

“While most insurers have already booked their total estimates for COVID-19 earlier in 2020, loss creep and additional local lockdowns from ongoing outbreaks of the virus will likely be an earnings headwind as we move through 2021. However, as we stated previously, we do not expect these to be as material as the losses disclosed so far,” Berenberg’s analysts explained.

The analysts continue to view four areas as the main market segments were further insurance and reinsurance loss creep from the pandemic could materialise.

These are: event cancellation; business interruption; credit and surety; and excess mortality losses.

Event cancellation is a particular area where the industry loss from COVID-19 could see a more significant jump in 2021, with the Olympics an event that has the potential to deliver a nasty surprise to some.

It’s been reported that global insurers and reinsurers could be facing a loss of up to as much as $3 billion if the rescheduled Tokyo Olympics are cancelled this year.

The analysts see the biggest driver of losses as the events that may be cancelled as a result of the pandemic, followed by further business interruption claims. But for significant additional business interruption losses to flow, it will likely take further legal actions by courts siding with claimants and against insurers, it seems.

However, local lockdowns can drive more business interruption losses, Berenberg’s analysts say, while legal action, especially in Europe, will likely define how much of the eventual losses would find their way to reinsurance capital.

Overall, “COVID-19 remains like a very large natural catastrophe,” the analysts state.

Which goes some way to explaining the fact it has been a key driver of reinsurance rate firming, especially as reinsurers and London market names are in many cases the most exposed to the pandemic.

However, “Even the impact for reinsurers is not exceptional, as their business is to cover large but infrequent events and to absorb the volatility in their balance sheet. We believe this will still be the case even with additional COVID-19 losses,” the analysts concluded.

Berenberg said before that COVID loss uncertainty will continue to fuel reinsurance rates through 2021, which is aligned with other analysts forecasts.

But, if overall the claims burden from COVID settles at below $60 billion, the upwards pressure on reinsurance rates from the COVID-19 pandemic alone is unlikely to persist for too much longer, it would seem.