Property catastrophe reinsurance is expected to show limited exposure to the ongoing Covid-19 coronavirus pandemic, given in general an outbreak should not be covered under these treaty’s and programs. But rumours abound that attempts to force claims into a range of covers are being seen.
Analysts at JMP Securities explained that the property catastrophe reinsurance business should be largely immune to the effects of the coronavirus pandemic.
“Property catastrophe reinsurance is a line of business where we expect to see very little impact, good or bad, from COVID-19 and the resulting recession,” they said.
The catastrophe loss activity of recent years has already driven pricing higher in property catastrophe reinsurance underwriting, the sector of the insurance market where insurance-linked securities (ILS) funds are most focused.
In addition, the potential for a deep recession as a result of the Covid-19 related shutdown of global economies is similarly not expected to have a significant impact on demand for property catastrophe reinsurance protection, or on the fundamentals of this particular market segment.
“A slowdown in economic activity generally has little impact on companies’ catastrophe reinsurance purchases,” the JMP Securities analysts said, although warning that this would be the case, “Unless the recession were to be deep/long enough such that primary insurers’ books shrink enough to reduce PMLs.”
But at this time of market-wide lockdown and working from home, there are already some rumours spreading that a number of catastrophe programs (unclear if reinsurance or retrocession) may be subject to attempted claims or filing of early loss advice related to the outbreak.
It’s not apparent how cedents would believe that impacts due to the coronavirus outbreak could be covered under a catastrophe program at this time, but it’s likely to relate to business interruption, we imagine.
We’re told this is not at all a widespread occurrence, but something seen in just a handful of cases and the majority are likely to find the contract language does not allow for any claims due to the pandemic to be covered.
In fact, our sources said that large primary property programs, the big single risk primary contract or facultative variety reinsuring a single exposure, are the places where any claims leakage is most likely to be seen at this time.
As has been experienced with cyber risk claims in the past (silently leaking into property towers), the resulting business interruption has been known to flow into property insurance and fac policies, something that we understand again attempts have been made on with this coronavirus pandemic.
Clearly, for the insurance-linked securities (ILS) market, property catastrophe reinsurance risks are underwritten on the basis that they cover natural catastrophe exposures.
The same goes for the traditional market, but often the terms can be a little looses and major global reinsurers can be a little more lenient when it comes to honouring claims from large clients.
However, we expect there will be a significant push-back on what we hear are just a handful of early claims or loss notice attempts right now, with significant reputational damage possible for those responsible for drafting contracts if they did allow a pandemic risk to qualify under the terms of what should have simply been a natural catastrophe cover.
Retrocession is a bit more of an unknown, as there are some covers which are much more all-encompassing than property cat, so cover catastrophe risk and other lines. How, or even if, the pandemic claims could affect these retro covers remains to be seen.
On the general conditions of the property catastrophe reinsurance market, which is key to the ILS community, rate increases for the Japanese renewals at April 1st are still expected to be significant, although the early forecasts of 40% and 50% increases may prove only available in the badly loss affected programs, we understand.
But further ahead, once the impact of the Covid-19 coronavirus pandemic has become better understood by insurers, there is a chance for some further support for rates going into the key June and July renewals, as diversified reinsurers will face claims elsewhere in their books due to the pandemic and so are likely to seek our better rates.