JP Morgan has reduced its net income estimates for the largest four European reinsurers, due to the significant claims that could arise from the coronavirus (COVID-19) pandemic.
On the P&C side, analysts see event cancellation as the most immediate source of claims, where the outcome for reinsurers should be known fairly quickly and mostly booked in Q1.
Business interruption (BI) is also a potentially major exposure for the industry as many property cover include BI clauses.
These typically require physical damage to trigger or have specific exclusions for pandemics, but JP Morgan sees several mechanisms by which BI claims or losses could still impact the reinsurance sector.
First, there will be some policies that do not exclude pandemic risk or specifically provide affirmative coverage, and there will more than likely to generate claims.
There may also be certain geographies where wordings are vague, and if primary insurers end up being deemed liable in these grey areas then such claims could also make their way to reinsurers.
Additionally, a prolonged shutdown could result in contingent business interruption claims if for instance supply chains are disrupted by physical events.
And finally, analysts highlighted several legal challenges that are attempting to force insurers to pay BI claims even where pandemic events have been specifically excluded.
Credit and surety is another area of reinsurance that could see elevated loss ratios, according to JP Morgan, although this is likely to be more relevant for later in the year than Q1.
The firm also flagged travel insurance as another possible source of claims, although it noted that this is a relatively small business line and could be offset to some extent by improved results in motor and home insurance books.
On the Life & Health side, it is conceivable that a sharp increase in mortality rates could produce elevated claims for reinsurers, although many firms have dismissed this risk as very significant increases in mortality are required to consumer the margins that reinsurers make in mortality books.
Specifically, JP Morgan revised its net income estimates down by -21% for Hannover Re this year, by -39% for Munich Re, -19% for SCOR, and -27% for Swiss Re.
