London headquartered insurer Aviva has announced estimated COVID-19 related losses of £160 million, net of reinsurance, in its General Insurance businesses based on claims in business interruption, other commercial lines, and travel insurance.
In its Q1 operating update, insurer Aviva has reported a strong start to the year, but also warned of widespread uncertainty around the potential impacts of the ongoing COVID-19 pandemic on its results moving forward.
The firm’s solid start to 2020 was underpinned by Life new business sales growth of 28% to £12.3 billion and 18% growth in the value of new business to £311 million. In addition, General Insurance net written premium jumped 3% year-on-year to £2.4 billion, and excluding the impacts of COVID-19, Aviva says that Canada achieved strong underwriting results while the UK was impacted by February storms.
The company notes that it is still in the early stages of COVID-19 claims development and so the actual impact on its performance remains unclear.
However, the firm has taken steps to assess the potential financial impact, and says that based on analysis as at April 30th, it estimates COVID-19 related claims in its GI businesses, net of reinsurance and incorporating notified and projected claims, of £160 million.
According to Aviva, this estimate includes estimated claims from business interruption of around £200 million, net of reinsurance, across global GI. The firm explains that most of its commercial policies do not cover business interruption claims as a result of the pandemic. However, it expects to see some exposure in certain specialist schemes and broker programmes, and adds that it has already paid claims in the UK and Canada where coverage exists.
Additionally, Aviva has said that it also expects claims to arise from some other general insurance products, including travel, surety, construction, and other commercial lines and has made estimates for claims in these areas.
Regarding business interruption, Aviva says that it will work constructively with the FCA in the UK, which, has begun seeking input from the market to help address and understand ongoing contractual issues.
While COVID-19 is expected to negatively impact some lines, for others, Aviva anticipates some favourable impacts, which it expects to partially offset COVID-19 claims across its international GI businesses.
Maurice Tulloch, Aviva Group Chief Executive Officer (CEO), commented: “In responding to COVID-19, Aviva moved quickly to support our customers, introducing a range of measures to help, including financial assistance. I am proud of how Aviva’s people have adapted and maintained excellent day to day service for our customers when they need us most.
“Aviva had a solid first quarter of trading. General Insurance sales increased 3% and we had a strong performance in Life Insurance where new business increased 28%. Based on analysis as at 30 April, our estimate of the COVID-19 claims impact on general insurance, incorporating notified and projected claims, is £160 million net of reinsurance.
“At 31 March, our estimated solvency ratio remains strong at 182% and incorporates COVID-19 related impacts. The economic outlook remains uncertain and will affect our business, however the strength of our capital and liquidity means we are well positioned to manage this crisis and continue to support our customers.”
Turning to investments, and Aviva’s portfolio continued to perform well in the period. The company explains that in its shareholder corporate bond portfolio around 5% is invested in areas most directly impacted by COVID-19, including sectors like airlines, retail, leisure, and oil & gas.
Looking forward, Aviva notes that much uncertainty remains surrounding COVID-19 and its impact on both the underwriting and asset side of the balance sheet. According to the insurer, early trends in Q2 2020 have seen new business sales decline across many of its businesses as a result of Government enforced lockdown measures across the world.
“We remain committed to achieving our 2022 targets, however, COVID-19 is expected to provide additional challenges to achieving these targets. We remain focused on enhancing customer and operational fundamentals to drive improved returns, better efficiency and cash-flow,” says Aviva.
