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Lloyd’s forecasts $107bn Covid-19 industry loss for 2020

14th May 2020 - Author: Steve Evans

The Lloyd’s insurance and reinsurance marketplace says that it will pay customers between $3 billion and $4.3 billion in claims due to Covid-19, but the industry was a whole is forecast to suffer $107 billion of losses in 2020 alone.

Lloyd’sThe industry loss forecast or estimate from Lloyd’s of London is stark, as it places the expected insurance and reinsurance industry claims impact from the Covid-19 coronavirus pandemic as the largest single market loss in history, but bases the $107 billion figure on underwriting losses suffered just in 2020, so does not consider any tail of losses that could flow for years.

Lloyd’s said the up to $4.3 billion of claims that it expects to pay customers of the market is on a part with losses experienced after 9/11 in 2001, and the combined impact of hurricanes Harvey, Irma and Maria in 2017, which all drove similar levels of losses to Lloyd’s.

Lloyd’s also warns that the losses could rise further if the lockdown is extended into another quarter. At this stage it seems unlikely the lockdown would be fully released globally by the third-quarter of this year, so that seems almost a certainty.

Once the full scale of the economic impacts from the Covid-19 pandemic are understood, Lloyd’s said that the total cost to the global insurance non-life insurance industry would likely be much greater than those historical events it compares the losses to.

John Neal, CEO of Lloyd’s, commented, “The global insurance industry is paying out on a very wide range of policies to support businesses and people affected by COVID-19. The Lloyd’s market alone is currently expected to pay claims amounting to some $4.3bn, making it one of the market’s largest pay-outs ever. What makes COVID-19 unique is the not just the devastating continuing human and social impact, but also the economic shock. Taking all those factors together will challenge the industry as never before, but we will keep focused on supporting our customers and continuing to pay claims over the weeks and months ahead.”

Lloyd’s has undertaken an economic study of the potential losses from Covid-19 across non-life insurance, looking at both underwriting losses through the Profit and Loss Account, as well as the reduced value of the investments insurance companies hold.

The study looked at the current pay out estimates assuming continued social distancing and lockdown measures through 2020’s second quarter, as well as the forecasts for a decline in GDP globally.

Based on this, Lloyd’s said that estimated 2020 underwriting losses across the insurance and reinsurance industry as a result of Covid-19 sit at roughly $107 billion.

That puts the total on par with major claims years, such as the 2005 or 2017 hurricane seasons.

Unlike those other historically large industry loss years, Lloyd’s also forecasts the insurance and reinsurance industry will experienced a dent to their investment portfolios of $96 billion, taking the total projected market loss to the insurance industry to $203 billion.

Lloyd’s estimate is right up at the top-end of other industry loss forecasts, above the top-end of the range offered by analyst consensus.

Once losses from the tail associated with Covid-19 are understood and life insurance market losses, these figures could rise considerably it seems.

Lloyd’s further explained that the expected payouts to its customers are split as follows:

  • Geography: US & Worldwide (58%), UK 15%, RoW (10%), Europe (7%), Other (10%).
  • Class of business: Event Cancellation (31%), Property Covers (29%), Credit Lines (11%) and 15 Other Classes (29%).

Lloyd’s also explained that, “Some $28bn is expected to be paid in 2020 across a wide range of policies, including Event Cancellation, Property and Travel. Further pay-outs are expected as the effects of COVID-19 continue to unfold, across classes such as Directors’ and Officers’ policies, Professional Indemnity and Credit insurance.”

It’s estimate for $3 billion to $4.3 billion of Lloyd’s market loss is based on two scenarios:

i. Submitted totals together with estimated downside uncertainty range up to and including 16 March 2020.

ii. Submitted totals together with estimated downside uncertainty range as well as assuming material social distancing rules and restrictions persist regionally and/or globally until 30 June 2020.

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