London market insurers and reinsurers are certainly not immune to the economic fallout from the COVID-19 outbreak, with exposures to pandemic and the subsequent recession risks seen across the property, marine, casualty, and contingency classes, according to Peel Hunt.
In recent industry notes, analysts at Peel Hunt have explored the potential impact of the coronavirus pandemic on London market re/insurers Lancashire, Hiscox, and Beazley.
While Peel Hunt finds that none of the companies in question are immune from the economic fallout from the pandemic, the amount of premium income that would be exposed to losses from the ongoing crisis varies by company.
Starting with Lancashire, and analysts note that the main difference when compared with Hiscox and Beazley, is the fact that Lancashire does not underwrite significant casualty insurance lines, which lowers its exposure to the recessionary risks associated with the pandemic.
However, analysts say that while Lancashire hasn’t written any significant direct insurance that explicitly covers pandemics, “the second order effect could be material.”
In fact, after breaking down the firm’s premiums and examining potential exposures to the recessionary impact of COVID-19, Peel Hunt warn that there is some 40% of premiums, or USD 305 million at risk of experiencing COVID-19-related claims. Analysts go further to say that this will include business interruption risk tied to property and marine exposures, political risk and aviation losses.
“This does not mean that LRE will see claims against all these classes, it just reflects what could potentially be exposed. It will depend on the individual wordings and terms & conditions of the insurance contracts that will effectively determine the potential Covid-19-related claims, many of which will be secondary or recessionary-linked in our view,” say analysts.
For Hiscox, Peel Hunt analysts estimate that up to 36%, or around USD 1.57 billion of its premiums could be exposed to the impact of the ongoing coronavirus pandemic, with the firm exposed to both direct and secondary effects.
Analysts explain that in their view, the reinsurance book is relatively isolated from COVID-19 fallouts, but highlights potential exposure across the company’s retail and London market operations.
“Hiscox’s retail business (50% premiums) may be more sensitive to the political risk engulfing the insurance sector. Around 80% of retail premiums are exposed to commercial SMEs and micro businesses, predominantly in the US and UK.
“Retail includes commercial property and liability exposures, which includes business interruption and general liability cover. So, the accumulation of losses across the retail book could be material, particularly if governments force insurers to relax the terms & conditions of Covid-19-exposed insurance contracts,” say analysts.
Beazley’s exposure to the current crisis is spread across property, casualty, and some specialty lines, and on aggregate, analysts at Peel Hunt see the firm has potentially the most exposed of the three, with c48%, or around USD $1.4 billion of premiums having some exposure to the pandemic. As with Hiscox, analysts again feel that the firm’s small reinsurance book is relatively isolated from the fallout.
“We estimate that Beazley’s exposure to the pandemic and the subsequent recession risks is across the property, marine, casualty and contingency classes,” say analysts.
The potential premium exposure for all three companies is assuming a ‘realistic worse-case’ scenario in which the pandemic materially affects the contingency (event cancellation), property, marine and casualty books, particularly in those lines focused on SMEs, explains Peel Hunt.
Of course, only time will tell exactly what impact the ongoing COVID-19 pandemic and subsequent recession risks have on London market insurers and the wider insurance and reinsurance industry.
For now, commentary seems to suggests that investments will take more of a hit than underwriting, but as the pandemic continues and the market moves through 2020, there’s clearly potential for significant claims activity in certain lines of insurance business.
