Barclays analysts expect this second wave of COVID-19 to incur less cost for European insurers than what was initially seen during the first half of 2020.
Analysts note how positive vaccine news, further political clarity in the US, stabilised yields and the latest COVID loss estimates create a positive backdrop for the sub-sector to close the wide P/E discount to the market.
Business interruption losses from second lockdowns in Europe are expected to be considerably smaller than those from the first half of 2020.
New contract wording factors in wide exclusions for pandemic losses, or waivers in case of voluntary settlements.
In addition, contracts usually look at recent revenue trends when determining potential losses, and with restrictions partly in place in Sep-Oct, it’s believed the quantum of exposure is lower for insurers with affirmative coverage.
However, analysts have highlighted uncertainty over how much of the gross claims from second lockdowns will be covered by reinsurers.
In the UK, the BI test court case initially ruled that the government advice to enter lockdown on 24 March was the trigger, therefore a second lockdown starting (in UK’s case) on 4 November would be a second event, necessitating primary insurers to exhaust retention first.
However, analysts note that many have purchased and/or reinstated aggregate covers, which would make extra net impact minimal in 2020.
