Although considerable uncertainty remains over its ultimate cost, COVID-19 looks set to rank among the sector’s most expensive events. The pandemic has the potential to bring unknown loss impacts. It is also likely to be one of the slowest developing catastrophes that carriers have ever encountered, likely creating a prolonged period of uncertainty.
Combined with insured catastrophe losses that have already occurred year-to-date, along with additional catastrophe claims that are typical in the second half of the year, losses for fiscal year 2020 look set, at a minimum, to approach USD 100 billion for only the fourth time ever. Should claims from COVID-19 settle at the higher end of current market estimates, or losses aggregate elsewhere from the ongoing unrest in the United States or an active wind season, 2020 could go down as the most expensive loss year ever and test further the limits of some carriers’ capital resilience.
There are nevertheless a couple of offsetting factors for carriers. Certain lines of business (e.g. personal and commercial auto) have benefited from an immediate dip in claims frequency due to the lockdowns, providing positive offsets. Additionally, the fundamentals of reinsurance remain strong: the sector’s capital base has been resilient to the recent financial market volatility and there are still opportunities in this environment for (strongly capitalized) carriers to offer new solutions and grow selectively into challenged lines.