The property and casualty (P&C) insurance industry loss from Covid-19 pandemic related claims is estimated in a range from $40 billion to as high as $80 billion by analysts at Dowling & Partners.
The Dowling & Partners analysts put this estimate as their working assumption of the eventual claims load for the P&C insurance industry as of April 16th, our sources said.
At this level, up to as high as $80 billion, the reinsurance loss would also likely be a relatively significant double-digit billion dollar figure, it seems.
Dowling’s analysts, who are relied upon by many equity investors that allocate to the insurance and reinsurance industry, base this estimate on a range of assumptions.
Sources told us that prime among the assumptions is that the P&C insurance industry will not be forced to take a massive claims load from retroactive business interruption.
Another assumption is that the U.S. courts will get heavily involved and legal action could take years to settle, meaning a true ultimate industry loss for Covid-19 will be impossible to come to until claims settle.
There’s also liability lines to consider here, as these claims could take years to develop fully.
A final assumption, we’re told, is that exposure to poor wordings is likely to be higher outside the U.S. than within it, which Dowling’s analysts believe will result in greater reinsurance exposure.
The analysts assume that reinsurers could take as much as 40% to 60% of the loss in regions where wording issues means more of the industry total falls to them.
The analysts are treating Covid-19 as an event likely to develop considerably and say they will hone their estimates over time.
However, they also note that there will be a significant challenge in coming to a finalised industry loss for the Covid-19 pandemic, as it could take years for claims to make their way through the courts.
As a result, Covid-19 could have a particularly long-tail for the reinsurance industry, which has bearings for insurance-linked securities (ILS) exposure, given the potential for collateral to be trapped for long periods if that proves to be the case.
Litigation risk could become a real issue for some as the Covid-19 event draws onwards.
Dowling’s analysts caution on reading too much into reported losses at this time, as they are all likely to significantly understate the true impacts as there is so much uncertainty associated with the claims load at this time.
We understand Dowling’s regional estimates for the P&C industry loss are: $5bn to $15bn in the U.S.; $5bn to $10bn in the UK; $5bn to $10bn in Europe; $2bn to $10bn for other property related lines and regions.
Liability lines are estimated at $5bn to $15bn and other specialty lines of insurance business could take $17bn to $40bn of the loss, with another up to $5bn set aside for any unexpected losses that flow through the industry.
But this is narrowed down to the expected range of $40 billion to $80 billion of ultimate loss for the entire P&C insurance and reinsurance industry.
It’s a big range, but that reflects the significant uncertainty we’re dealing with here.
These are high numbers, but that reflects the fact Covid-19 could well be the most unprecedented loss for the insurance and reinsurance industry, given its global impacts, the potential for claims to flow for a long period of time, for those claims to have a long-tail and for this to be perhaps the largest industry event ever when you take into account the hit to both sides of the balance-sheet.
Dowling & Partners are highly respected for their work in helping investors to better understand the re/insurance sector, so it’s worth putting some weight behind these estimates.