COVID-19 takes its toll on insurers' first quarter results

How large the financial fallout from the pandemic will be is yet to be determined

COVID-19 takes its toll on insurers' first quarter results


By Alicja Grzadkowska

The following is an editorial by Alicja Grzadkowska, senior news editor at Insurance Business. To reach out to Alicja, email her at [email protected].

With the pandemic only now becoming a litigious one as businesses line up to sue insurance companies for not paying out on business interruption claims, it might seem that insurers wouldn’t be impacted financially by the health crisis at this stage. However, as Q1 results start trickling in, it’s becoming evident that some insurers’ first figures for 2020 have been overshadowed by the coronavirus outbreak.

For example, reinsurance giant Swiss Re reported a group net loss of US$225 million, thanks to COVID-19 as well as a pre-tax charge of US$476 million for its property and casualty business. Meanwhile, Argo Group warned before its Q1 release that it expected to report pre-tax net catastrophe losses of US$29 million, including approximately US$26 million related to the COVID-19 pandemic, mainly due to contingency and property exposures in the group’s international operations and property exposures in its US operations.

And the losses get bigger, with Markel Corporation posting a comprehensive loss to shareholders of US$1.4 billion, which marks a significant drop from the comprehensive income of US$732.2 million it reported in the same period last year.

In the midst of these losses, other companies are already taking steps to minimise fallout, with Aon chief executive Greg Case recently asking for company-wide backing by way of temporary pay cuts. Named executive officers and Aon’s board of directors will reduce salaries by 50%, and 70% of employees will be asked to take a reduction of approximately 20% of salary.

It’s not surprising that insurers are suffering from losses since even though many insurance contracts do not provide coverage that applies to the pandemic, insurers have written some policies that will respond, as noted by Albert Benchimol, president and CEO of AXIS Capital.

Yet despite the significant shift from insurers’ quarterly and annual results that were for the most part positive not so long ago, there are disagreements about how impactful COVID-19 will be for the industry broadly and for individual companies over the long-term. Lloyd’s chief John Neal has suggested that the pandemic is likely to be the most expensive event in history for the insurance industry, while Liberty Mutual chair and chief executive David Long said that from a financial perspective, the company expects the impact of COVID-19 on its insurance operations to be similar to those it has experienced for a moderately-sized catastrophe loss.

But erring on the side of the worst-case scenario might be the more logical mindset. Though some countries (like New Zealand) have been more successful than others at fighting the spread of the virus within their borders, it’s evident that there’s a lot more to come in the way of economic and social fallout from the pandemic. There is speculation that travel might be impacted until the end of the year or until we have a vaccine, while periodic social distancing measures might return based on how confirmed cases start trending after restrictions are lifted.

Insurers need to brace for more impact as the debris from the pandemic continues to scatter by cutting expenses and setting aside funds where they can, including potentially trimming salaries. After all, 2020 has yet to present any major natural catastrophes and if recent wildfires in Australia or California are any sign of what’s to come, there may be more strain on bottom lines as the year evolves, on top of COVID-19, which is already a heavy burden.

As Swiss Re’s group CEO Christian Mumenthaler said in the company’s Q1 release: “The COVID-19 pandemic is far from over and its broader economic and social consequences will be far-reaching.”

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