Analysts at investment bank Berenberg have decided to lower their estimate for global COVID-19 claims to a range of $40 billion to $60 billion, down from their previous range of $50 billion to $70 billion which was released in June 2020.
Berenberg’s June estimate was already significantly lower than Swiss Re’s range of $50 billion to $80 billion.
But with publicy reported COVID-19 losses still only amounting to around $30 billion as of February 1st, the firm has decided to move towards a more conservative total loss forecast.
“While we are far from reaching even the lower end of the range of $50bn, we will undoubtedly get a little closer during 2021,” Berenberg noted.
“However, we continue to believe that total industry losses will be much lower than originally feared at the peak of the crisis last year and now believe a range of $40bn-60bn might be more realistic.”
A comprehensive and up-to-date list of re/insured pandemic losses can be viewed via our COVID loss table, which breaks down all publicy reported losses by individual company.
To reach Berenberg’s new lower threshold of $40 billion, losses still need to increase significantly, but analysts believe that loss creep and additional local lockdowns from ongoing outbreaks of the virus will likely be an earnings headwind as we move through 2021.
That said, most re/insurers have already booked their total estimates for COVID-19 earlier in 2020, and future losses are not expected to be as material as the losses disclosed so far.”
However, analysts at Berenberg also argued that the COVID-19 crisis could yet prove to be a positive catalyst for the insurance and reinsurance markets, helping to fuel rate increases and tighten terms and conditions.
Moreover, analysts note that the crisis has allowed re/insurers to demonstrate their resilience to extreme events, with shareholders’ equity up from $450 billion to $460 billion for those companies covered by Berenberg.
In the meantime, this same group has paid out $27 billion in dividends and buybacks, paid and reserved around $15 billion of COVID-19 losses, paid around $12 billion in natural catastrophes, and many are still thought to have the cash, capital and risk appetite to complete and or consider more deals.
Notably, Berenberg observes that premium rates had been inadequate for a long time prior to the pandemic, but it took this crisis to force re/insurers to reassess their risk models.
“It is this change in risk perception that is new, and we would compare this with the change in risk perception that followed 9/11. And, similarly to the hard market which came after 9/11, we believe this means that the rate rises now will be longer lasting,” Berenberg stated.
Many insurers have also used the COVID-19 crisis to add to their reserves, a prudent trend that is expected to be reflected in full-year 2020 results as they are releases.