Speaking on a recent call to Morgan Stanley, David Flandro stated a belief that, in the absence of government intervention, COVID-19 will have a minimal/moderate impact on losses for the re/insurance industry.
Flandro, Managing Director of Analytics at Hyperion X, noted how there is no evidence the impact from the pandemic will reach the magnitude of large cat years such as 2017 without some structural change.
However, Flandro says that D&O and E&O claims will likely see development from this event.
Event cancellation coverage, which is mostly placed in the London market, supposedly has clear cut cases which will not be disputed.
The Tokyo Olympics would fall into this bucket, with an estimated impact of $2 billion to the industry.
Flandro says that as this is likely the largest claim related to COVID-19, it is difficult to see how the event could get anywhere close to the roughly $50 billion impact from HIM storms.
Furthermore, Flandro believes that primary carriers will likely see more impact in the short-term than the reinsurers.
Prior to COVID-19, Flandro believed reinsurers were poised to close the performance gap with primary carriers and he maintains this view.
Primary carriers are more likely to face top-line pressure from recessionary headwinds
and heightened claims activity than the reinsurers.
Flandro does not believe primary insurers will be able to pass on COVID-19 losses in the form of property cat to reinsurers, but notes it is possible that they could pass it on through some whole account proportional or XOL losses.
Flandro also emphasized that trends in place pre-COVID drove pricing increases at April 1 renewals, and he expects the same to be true for June 1 renewals.
In regard to geographical impact, Flandro noted more activity in London as contracts tend to be shorter and clearer, while US contracts include more fine print and exclusions.
In terms of capital, smaller companies with capital concerns seek to protect assets while larger companies are using the opportunity to grow in challenged lines without reallocating capital from other parts of the business.
