No evidence Covid-19 industry loss will match large catastrophe years: Flandro

Absent some kind of government intervention that forces a raft of claims into the insurance and reinsurance industry, David Flandro, Managing Director of Hyperion X Analytics, believes that there is no reason to expect the industry loss from Covid-19 will reach the levels of a large catastrophe loss year.

Speaking with analysts from Morgan Stanley yesterday, Flandro, who works for the data and analytics focused division of insurance and reinsurance broking and consultancy specialist firm Hyperion, said that the true picture of claims and losses would only cause a minimal industry-wide impact, unless government’s step in.

He expects the Covid-19 coronavirus pandemic will be a manageable loss for the property and casualty insurance and reinsurance industry, with accident year claims from 2020 so far showing no evidence that the event will have an impact the magnitude of say the 2017 hurricanes of Harvey, Irma and Maria, unless there is some kind of structural change to drive the cost to the sector much higher.

Liability claims under directors and officers, as well as errors and omissions lines, are expected to see some development because of the pandemic, while areas such as event cancellation will see clear cut claims like the Tokyo Olympics that will drive large losses through to re/insurers, but on their own will not mount to a particularly significant level.

Primary insurers are more likely to face headwinds as a result of the Covid-19 pandemic than the reinsurance market, in Flandro’s view.

Importantly, Flandro does not believe that the primary insurance market will be able to wholesale pass on Covid-19 claims under property catastrophe reinsurance, but he does expect reinsurers to see some claims under whole account proportional coverages and even some excess of loss programs.

He believes that the drag caused by the pandemic will help reinsurers accelerate their performance further up towards the primary carrier level, with pricing expected to continue supporting a narrowing of this performance gap at the mid-year renewals, where further firming is likely, Flandro said.

In addition, Flandro said that re/insurers are keen to maintain their respectable reputations with the public and so are honouring claims where valid. But at the same time the industry does not want to pay-out extra contractual claims.

Flandro also said that some companies, the better capitalised among insurance and reinsurance players, are taking advantage of market dislocations to find growth in some lines of business, while those less well-capitalised are having to focus on protecting their assets at this time.