In a report looking at the affects of COVID-19 on the re/insurance industry, analysts at specialty insurer AmWINS have warned that “the loss impact on the market will be profound.”
In May, Lloyd’s of London reported that it will pay between $3 billion and $4.3 billion as a result of the pandemic, which is equal to the cost of 9/11, or the combined impact of hurricanes Harvey, Irma and Maria.
The estimated amount the re/insurance industry as whole will pay in covered claims varies widely, with projections ranging from $40 billion to $100 billion, but losses could rise further if the current lockdown continues into another quarter.
According to the results of the latest survey by Reinsurance News, the majority of market participants predict the ultimate non-life underwriting loss will be less than $100 billion, although 20% said it could be up to $150 billion, and 14% anticipate it will be over $200 billion.
In addition to these impending losses, the state of the global economy, possible resurgence of COVID-19 in the fall and winter, property damage from riots, and predictions of a higher than average hurricane season will continue to impact market conditions.
These conditions have prompted a significant shift in reinsurance treaty renewals, with average increases of more than 25% at the June 1 renewals.
AmWINS noted that many re/insurers are also still concerned about legal actions to implement retroactive business interruption coverage, and the long-term impact of the pandemic on claim activity that was not accounted for in their rate development or policy wording.
“If successful, this would have a devastating impact on our industry,” says Harry Tucker, AmWINS’ National Property Practice Leader. “Our industry’s leaders are actively working both individually and through association groups to educate regulators on the issues this would cause, including potential bankruptcy for our industry.”
In terms of pricing, AmWINS anticipates that commercial property rates will continue to increase between 10% and 25% year over year, depending on the level of cat exposure, and 30% or more if the account is cat-exposed with losses.
“Insureds can find some consolation in that rates may level out toward Q4 2020 as the businesses that took the brunt of rate increases at the beginning of the cycle come up for renewal,” Tucker continued.
“In the Casualty space, capacity restrictions within the Excess sector are the most prominent,” added Tom Dillon, AmWINS’ National Casualty Practice Leader. “The trend of reduced capacity and increased rate started prior to the COVID-19 outbreak, but effects of the pandemic have added additional pressure to not only rate, but the terms carriers are willing to offer.”
In professional lines, insureds tend to be seeing substantial rate increases with minimal ability to negotiate terms, regardless of whether the account is impacted by COVID-19.