Japan’s decision to bar spectators from the Tokyo Olympics is likely to cost the global reinsurance sector between $300 million and $400 million due to payouts for ticket and hospitality refunds, according to Fitch Ratings.
However, the rating agency notes that this total is only 10%–15% of the amount reinsurers would have faced had the Olympics been cancelled, and its impact on earnings should be limited, leaving capital and ratings unaffected.
Fitch estimates the total insurance cover for the Olympics to be about $2.5 billion, comprising $1.4 billion taken out by the International Olympic Committee and the Tokyo Organising Committee, $800 million by broadcasters and $300 million by other parties, such as sports teams, sponsors and hospitality.
Of these costs, reinsurers are expected to absorb the majority, given that that high-severity exposures are typically heavily reinsured.
While this years’ delayed Olympic Games is still set to go ahead, albeit without any spectators, a majority of reinsurance industry participants have been expecting a cancellation of the event in recent weeks, a Reinsurance News poll shows.
Cancellation of the Olympics would have led to the largest ever insured losses from a single event cancellation, adding to pressure on reinsurers’ earnings from the pandemic and US casualty reserve deficiencies, and following several years of high natural catastrophe losses, analysts at Fitch contend.
The International Olympic Committee (IOC) has taken out around $800 million in event-cancellation insurance, with additional cover purchased by the local organising committee, and analysis from Bloomberg Intelligence has previously suggested that the insured cost of cancellation would be in the $2 billion to $3 billion range.
The pandemic has highlighted how mass cancellations can happen simultaneously due to a single trigger, with even mega events, such as the Olympics, potentially at risk.
“The pandemic has led the insurance market to generally stop offering cover for losses resulting from communicable diseases, although cover for event cancellation due to other causes is still available as before,” Fitch stated. “We believe cyber risk could give rise to the next widespread catastrophe losses triggered by a single event, which could lead insurers and reinsurers to rethink the cyber cover they provide.”
Renewed insurance policies for event cancellation now exclude cover for losses due to communicable diseases, which should shield insurers and reinsurers from losses resulting from further lockdowns to fight the coronavirus pandemic or future pandemics.
However, event cancellation policies are typically multi-year, so it will take time for the existing risk exposures to run off.