Senior executives at Swiss Re have said that the ongoing coronavirus outbreak is not expected to be a “material issue” for the company, or for the wider re/insurance industry.
Speaking during a media call alongside the release of Swiss Re’s 2019 results, Group Chief Financial Officer John Dacey said that economic losses from the coronavirus could be “very large,” but that few of these will be covered by re/insurance.
Dacey explained that Swiss Re was tracking the coronavirus very closely, as it has potential exposure due to its reinsurance business in China and many life insurance clients in the Chinese market.
But whilst it has observed significant business interruption in many parts of the supply chain, the company believes most of those interruptions will not be covered by insurance due to a lack of physical damage.
“Typically, but not always, those property treaties would require a physical damage to pay,” Dacey said during the call.
The CFO’s comments seem to echo the view from Hannover Re, whose CEO Jean-Jacques Henchoz said earlier this month that the reinsurer is not anticipating any significant losses to stem from the coronavirus outbreak.
This is despite analysts at AM Best saying that reinsurers could face high levels of risk due to their large exposure to mortality and morbidity risks.
Asked whether the lack of coverage around non-physical business interruption losses could represent a failure of the re/insurance industry, CEO Christian Mumenthaler noted that there simply had not been enough demand for such products.
He said it would be possible to offer this kind of coverage, but that Swiss Re had modelled this kind of coverage for years and still considered the tail risk to be very big.
“The truth is that most corporations forget about the risk when there’s not been one for a while,” Mumenthaler explained. “So there wasn’t huge demand in the past but there might be now. But even if there is demand, the risk accumulates and is not one that it is easy to have loads around.”
Since being identified by the WHO in late December, there have been more than 75,000 confirmed cases of coronavirus in China alone, and 2,119 people in the country have died as a result of the outbreak.
In response, China has halted flights, blocked roads to major cities and shut down factories, putting heavy pressure on the economy.
To help alleviate this pressure, regulators have been injecting money back into the financial system and fast-tracking the launch of cheap life insurance products
While there are fears that the outbreak could develop into a global pandemic, Dacey noted that the coronavirus is currently far less dangerous than the normal influenza virus, in terms of fatalities.
“It is worth remembering that in any year usually between 3-5 million cases of serious influenza,” he said.
“Fatalities are higher with Coronavirus but that is a point of reference. Cases of serious influenza lead to up to 650,000 deaths a year, due to normal influenzas. So while coronavirus is not to be ignored, it’s a fraction of what we would usually see in a normal year.”