COVID-19 Provides a Boost to One Type of Insurance

Welcome to iLeads Insurance Market Minute, where we bring you the latest, most relevant news regarding the insurance market. Last week you were reading Warren Buffett on Coronavirus and Insurance: Expect ‘a Lot of Litigation’ Ahead. This week we’re bringing you:

Reinsurance sector won’t earn cost of capital in 2020, says Fitch*

The global reinsurance sector will fail to earn its cost of capital in 2020 due to the COVID-19 pandemic, according to a forecast by Fitch Ratings.

Fitch projected that financial performance would be impacted by mortality claims and losses from event cancelation, business interruption, credit and surety insurance, and financial-market disruption due to the economic impact of COVID-19-related lockdown measures. The pandemic follows three years of heightened natural catastrophe losses and rising US casualty claims, which impacted returns in 2017-2019, Fitch said. Read more in-depth here.

Coronavirus will be the largest loss on record for insurers, Lloyd’s of London says*

Lloyd’s of London said Thursday morning that it expects coronavirus-related losses to the insurance sector to be the largest to date.

The British insurance and reinsurance market projected that its own Covid-19 casualty and property (C&P) claims could reach up to $4.3 billion as at June 30, and warned that this could rise further if the pandemic continues for another quarter.

In a broader economic assessment report on the impact of Covid-19 for the non-life insurance industry, Lloyd’s estimated that the 2020 underwriting losses covered by the industry will hit $107 billion.

“In addition, unlike other events, the industry will also experience falls in investment portfolios of an estimated $96bn, bringing the total projected loss to the insurance industry to $203bn,” the report added. Read more in-depth here.

COVID-19 provides a boost to one type of insurance*

There are not many green shoots of hope for the insurance industry amid the coronavirus pandemic. Though many insurers have been able to save on reduced car insurance claims, others have faced a barrage of complaints over issues like business interruption cover – even though they may never have offered coverage for pandemics in the first place.

So then, perhaps it’s some small consolation for the industry that at least one product appears to have received a boost from the pandemic – warranty & indemnity (W&I) insurance in M&A.

According to brokerage giant Lockton, take up of W&I in M&A deals has surged – rising 6% to more than 40% in the past five years with companies “scrambling” to win transactions in what has become an increasingly competitive landscape.

Now, the company suggest that W&I is likely to take on added importance for buyers and sellers to mitigate the uncertainty in the market as the pandemic rolls on. The product can provide cover for warranties and indemnities, and breaches of representation, while providing buyers with certainty that they are backed by an insurer and sellers the chance to limit their liability. Read more in-depth here.

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