COVID-19 could be 'most costly' event for insurers with losses reaching $60bn

The global COVID-19 pandemic could be the "most costly insured loss on record" with losses reaching $60 billion, mostly driven by business interruption (BI) and trade credit.

According to industry analysts at investment bank UBS, COVID-19 insured losses are estimated to be in the range of ~$30-60 billion, up from the earlier estimate of ~$20-40 billion.

UBS said that given the uncertainty, insured losses could even reach $90 billion, even though the estimate tends to be on the higher side.

The analysts believe that the pandemic is likely to be a "market turning event". The industry narrative on potential COVID-19 claims has deteriorated sharply in the last two weeks.

Experts suggest that business interruption and trade credit are likely to drive material market losses. The losses from business interruption are now expected to be in the range of $7-22 billion, compared with the previous estimates of $5-15 billion, while for credit & surety it is expected to be between $8-16 billion.

UBS noted that it expects "more of a reinsurance loss given low primary exposures".

"Our sensitivity analysis supports our view that this remains a P&L event, albeit there remain risks for those with looser policy wordings on BI. Once BI tail risks are contained, focus will shift sharply to re-pricing; we believe COVID-19 increasingly looks like a market turning event," UBS analyst Jonny Urwin said. "Our preferred exposures are LRE, BEZ, Zurich, Swiss Re and SCOR."

"We map an illustrative $45bn industry loss to show sensitivities to EPS, TNAV and Solvency. We find illustrative losses contained to P&L volatility. Most impacted are the London Market names; which tallies with company updates so far. These sensitivities do not include investment losses, which have been material for some in 1Q20, albeit this has partially reversed in 2Q. We show modest impacts to 2020E TNAV and Solvency," Urwin added.

"We expect balance sheets to remain intact, but BI remains the wildcard," Urwin concluded, adding that "our preferred exposures are Lancashire, Beazley, Zurich, Swiss Re and SCOR Stocks with balance sheets to grow post-loss will screen well; our preferred exposures are Lancashire, Beazley, Zurich, Swiss Re and SCOR."