Analysts at managing agency Argenta Group have argued that Lloyd’s has been conservative in its estimates of the insurance losses it will face due to the COVID-19 pandemic.
The insurance and reinsurance marketplace previously said that it will pay customers between $3 billion and $4.3 billion in claims, out of a total bill of $107 billion for the wider industry.
Importantly, this estimate is based on the assumption that where business interruption cover is excluded in the absence of physical loss to insured premises, there will be no retrospective provision of cover.
Argenta acknowledged that the $107 billion figure is at the higher end of industry estimates so far, but was skeptical that Lloyd’s market losses would constitute so small a portion of the overall cost.
For instance, according to reinsurance broker Willis Re, “owned-up” exposures included in published statements by re/insurers amount to only $4 billion to date, with Lloyd’s figures accounting for half of the reported loss.
“We would hope that the thorough analysis Lloyd’s has given to assessing its exposures means that these forecasts will stand the test of time as the loss develops,” Argenta stated.
Lloyd’s did, however, emphasize that there remains a large degree of uncertainty around COVID-19 losses, with insurance exposures to be significantly affected by the state of the global economy after the pandemic.
In terms of geography, Lloyd’s is anticipating loss activity from all of its major markets, with the largest losses forecast in the USA at 40%, followed by the UK (15%) and the rest of Europe (7%).
Argenta also sees the value of balance sheet assets as a major source of loss for re/insurers, in combination with the insurance loss.
Lloyd’s believes that the loss to global re/insurers’ asset base, combined with the underwriting loss, could be $200 billion, with CEO John Neal confident this will lead to hard market conditions.