QBE, the Australian headquartered global insurance and reinsurance group, said this morning that its claims from the Covid-19 pandemic have taken it very close to attaching its aggregate reinsurance cover.
The company also explained that it expects any business interruption claims from the pandemic will be covered under its catastrophe reinsurance treaties.
QBE reiterated its expectation for US $600 million of impacts related to the Covid-19 coronavirus pandemic, $335 million of which are on the underwriting side.
Alongside elevated catastrophe losses, this drove the re/insurer to a statutory net loss after tax of $712 million for the first-half.
Catastrophe claims far exceeded QBE’s allowance for the period, reaching $308 million, exceeding the $252 million allowance.
Driving these catastrophe claims were the bushfires in Australia coupled with significant Australian east coast hail and storm activity.
In addition, QBE was hit by $120 million of adverse development on prior year reserves this first-half as well, largely from North American events, with around half contributed by closed portfolios (E&S and multi-line inwards reinsurance) and the remainder from industry-wide claims development related to 2017’s hurricane Irma.
But it is the Covid-19 claims and their coverage under QBE’s reinsurance that is perhaps most interesting today, with the insurer going out of its way to message its reinsurers that it expects coverage for all its losses from the pandemic, including business interruption.
As things stand, including the impacts of the first-half catastrophes and severe weather, as well as Covid-19 claims, QBE expects that it has eaten through all but $20 million of the deductible on its catastrophe aggregate reinsurance arrangement.
That’s after accounting for the $5 million per-event deductible and suggests that QBE will definitely be eating into its catastrophe aggregate reinsurance if second-half subject losses go above the budgeted $210 million.
Qualifying within that erosion of deductible are Covid-19 claims, but QBE expects to recover elsewhere in its reinsurance tower as well, it seems.
The re/insurer highlighted that its exposure to claims from UK primary business interruption from the pandemic would be capped at $70 million, because of the benefits of its non-peak peril catastrophe excess-of-loss reinsurance and also the whole account quota share it has in place.
The company has also gone out of its way to explain where it feels business interruption claims from the pandemic are covered by its reinsurance program.
In the U.S., exposure is expected to be minimal given “all policies have virus exclusion” QBE explained. However, any that do fall to the firm are expected to qualify for protection under its quota share, non-peak cat excess-of-loss reinsurance treaty and its catastrophe aggregate reinsurance.
Internationally, including the UK where BI claims are expected to be capped at $70 million by reinsurance, QBE says exposure to Covid-19 BI is moderate, but again the firm expects protection under its quota share, non-peak cat excess-of-loss reinsurance treaty and its catastrophe aggregate reinsurance.
In Australia and Pacific, QBE sees its exposure to BI as minimal, as it is “confident that wordings exclude pandemic.” But again, the same as the other regions, QBE expects to be protected by all forms of reinsurance mentioned above.
“QBE’s non-damage business interruption exposure arising from COVID-19 is protected by comprehensive property catastrophe XOL, catastrophe aggregate and “clash” reinsurance,” the re/insurer said today.
It highlights that “QBE’s property catastrophe and catastrophe aggregate treaties are “all perils” covers i.e. qualifying perils are not named or listed.”
Saying that, “This contrasts with less expensive “named perils” covers, which only cover perils specifically named (and would therefore exclude COVID-19 unless pandemic was named as a qualifying peril).”
Finally highlighting, “Classes of businesses covered by QBE’s catastrophe treaties include “property material damage and business interruption” i.e. business interruption is covered in its own right and does not require a material damage trigger, unlike many primary policy wordings.”
It’s a pretty clear statement of intent to claim on its reinsurance for any and all pandemic business interruption claims.
Other major re/insurers have messaged similar in recent weeks, highlighting that they feel Covid-19 falls into catastrophe treaties and the like.
With thoughts now turning to the end of year renewal season, wordings and exclusions are going to feature heavily in reinsurance renewal negotiations. It may cost carriers a lot more to have this type of protection going forwards.