Global insurers and reinsurers are facing a loss of up to as much as $3 billion if the rescheduled Tokyo Olympics are cancelled, according to reports.
At a loss of between $2 billion – $3 billion, cancellation of the event would drive the largest ever claim in the global event cancellation market, according to broker Gallagher.
For participants in the event cancellation market, the COVID-19 pandemic has been extremely challenging, leading to the cancellation of numerous festivals and concerts, alongside a myriad of global sporting events, most notably the 2020 Tokyo Olympics.
Although rescheduled to commence on the 23rd of July 2021, much of Japan is now under a state of emergency as a result of a third wave of the coronavirus, while many other countries remain in some form of lockdown as the vaccine rollout continues.
It had been previously been suggested that the Olympics could only go ahead if an effective vaccine was made available. But while multiple vaccines have been developed and programmes are in place globally, the situation remains grave.
The fact of the matter is that the International Olympic Committee (IOC) is in a similar position to last year when it decided to postpone the event.
Both the IOC and organisers in Japan have stressed that postponing the games for another year is not an option, so it looks as though they will have to be cancelled rather than delayed if it’s decided the event is unable to go-ahead in Tokyo this year.
A Reuters report notes that, according to Simon Henderson, an Executive Director at Gallagher, the cancellation of the Olympics could result in a “mind-blowingly” large loss, and would “be by far the largest” event cancellation loss from the pandemic.
“The Olympics is a World Cup, it’s a tennis tournament, it’s an athletics tournament. It’s swimming, everything all in one – definitely a huge headache,” said Henderson.
As we wrote previously, reinsurance giant Swiss Re has a specific exposure of $250 million to the cancellation of the 2020 Tokyo Olympics, while one source previously told Reuters that Munich Re’s exposure is as high as $500 million, although this is unconfirmed.
In December, Munich Re responded to the situation by ceasing to write coverage for events cancelled due to pandemics.
Overall, analysts at Jefferies estimate that the Tokyo Olympics is inured for approximately $2 billion, with an additional $600 million for hospitality. It’s understood that the IOC has an event cancellation policy in place worth around $800 million, which covers the majority of the $1 billion investment it makes in each city that hosts the games.
Furthermore, the local organising committee in Tokyo will have its own policy which is estimated at around $650 million, while broadcasters will also have some fairly sizeable insurance policies in place.
Whether or not the Olympics gets the go-ahead remains to be seen but with the games scheduled to start in under six months, re/insurers in the event cancellation space will be keeping a close eye on developments.