JP Morgan has said that the companies most heavily impacted by the coronavirus pandemic were European reinsurers and Lloyd’s names.
The assessment, done in relative terms, came as a surprise to JP Morgan, who said that tail risk generally accumulates at the reinsurers and that specialist classes of business are more focused within markets such as Lloyd’s. also badly affected, said the financial giant, was property and casualty business.
It wrote in the latest edition of Love Actuary: “Initially, it was assumed that P&C businesses would be relatively well protected from claims due to limited exposures and contract exclusions. In practice however, total claims for the industry for the pandemic in P&C alone have been estimated to be ~$35bn in total.”
JP Morgan said that claims arising from the coronavirus pandemic should increase over time and there should, two years on, be more clarity on their cost.
It said: “Typical levels of IBNR for reinsurance companies after two years would normally be around 30% or less. However, on average for the European reinsurers, this level is running at 50% for COVID-19 claims suggesting that there is additional conservatism or buffers that have been built in. We estimate that if reserves for COVID-19 do end up being cautious, the companies best placed to benefit are Munich Re and Swiss Re with the surplus as a % of 2023E consensus PBT 19% and 16% respectively if IBNR levels move towards more normal levels.”