Global insurance and reinsurance companies continue to work to remove COVID-19 and pandemic exposures from their property and casualty (P&C) businesses, note executives at Swiss Re.
The unprecedented impacts of the ongoing pandemic have been challenging for risk transfer market participants of all shapes and sizes, with some of the largest P&C players reporting significant losses.
Swiss Re’s H1 2020 results confirmed the $2.5 billion of pandemic related claims and IBNR the reinsurer has reserved for in the first-half of this year.
Widespread uncertainty remains around much of the coronavirus outbreak and especially the potential for a second wave. For re/insurers specifically, there’s been uncertainty throughout surrounding business interruption policies and while the issue isn’t expected to be resolved anytime soon, companies have been taking advantage of the reinsurance renewals to remove COVID-19 and pandemic risks from the P&C sector.
Speaking during the firm’s earnings call, Group Chief Executive Officer (CEO), Christian Mumenthaler, said that, “all contracts renewed in April and July have clauses that excludes the COVID-19 and pandemic. So, this is a clean-up that’s being done. That’s not just us that’s the whole industry is working towards that.”
Adding: “It’s obvious that we couldn’t renew cat XL treaties including COVID, that’s clear to the whole market. So that means that basically the exposure has gone from these treaties in the U.S. for example since July.”
Later in the call, the issue was discussed again and Edi Schmid, Group Chief Underwriting Officer (CUO) at Swiss Re, reminded listeners that on the P&C side, it’s never been the intention to provide significant capacity for pandemic events.
“So, over the last years there was some slippage, a bit too much generosity to include non-damage business interruption. It was also a bit underestimated on the event cancellation that a big pandemic would create such a broad lockdown, leading to cancellation / postponement of so many large events.
“So, clearly this whole business’s exposure to the pandemic needed to be reviewed. And to a large extent, I think there’s only one answer that on the P&C side, pandemic needs to be excluded. And that’s what we’ve been working on already since April,” said Schmid.
He continued to note that in all rounds at the April and July reinsurance renewals the company was able to exclude pandemic infectious disease more broadly where commercial business interruption exposure exists.
It’s going to take time before the ultimate financial implications of the pandemic for the global re/insurance industry are understood. Swiss Re’s CEO said recently that on the P&C side, losses from the COVID-19 pandemic will come in under a “manageable” $80 billion.
According to Schmid, on the P&C side, public and private sector collaboration is the only solution to address pandemic risks. “The government needs to provide some backstop and the insurance industry can then help with the risk assessment, with the policy distribution, and the claims settlement. And, these discussions are going quite well in many markets and Swiss Re is part of that.”