By Alwyn Scott and Suzanne Barlyn
(Reuters) – Insurers are normally great with numbers. But the coronavirus pandemic has them struggling to estimate how many billions of dollars in losses they face, and what the fallout will be for their massive investment portfolios.
Executives, lawyers and analysts say the cost is sure to be multiples of prior catastrophes like Hurricane Katrina, the Thoku tsunami or the 9/11 terrorist attacks. That could be tens of billions to half a trillion dollars or more, depending on how long the pandemic lasts and other variables.
“This has the potential to be the largest insurance loss of all time,” Alan Lyons, a partner and chair of the insurance practice at Herrick Feinstein in New York, said in an interview.
Unlike other disasters, the pandemic has been hitting businesses, individuals and markets throughout the world, all at once. Customers are filing claims across numerous policy types, from workers compensation to events cancellation to broader commercial liabilities.
Many claims for business interruption likely will not be paid this year since lawsuits will take a year or more to resolve, Lyons said, and cost insurers millions of dollars to defend.
Insured losses in the United States and U.K. alone could be anywhere from $11 billion to $140 billion, insurance broker Willis Towers Watson PLC
Tracking U.S. coronavirus cases graphic: https://tmsnrt.rs/2WqHyUl
Some experts warn of even more costly outcomes. Losses could exceed $500 billion if state lawmakers require insurers to cover business-interruption claims for pandemic losses, former CNA Financial Corp
“If they pass this law in New York and eventually other states, every business with the coverage will file a claim and it will force those insurers into bankruptcy,” Chookaszian said.
Britain’s Financial Conduct Authority, which regulates insurers, said on Friday it will seek clarity in court on whether business-interruption policies cover pandemics.
MARKET EXPOSURE
Meanwhile, insurers are facing a second blow from the trillions of dollars they have invested in global markets.
Although stocks have partly recovered from their plunge in late February, low interest rates are biting into bond income, with credit and liquidity issues across more obscure parts of the market.
Insurers that have reported first-quarter results – including Chubb Ltd
Swiss Re and Markel faced big hits from the cancellation of major global events like the Olympics and Wimbledon.
Executives expect the pandemic to remain an earnings issue, rather than a question of viability, but warned that problems are sure to crop up in businesses that have not yet experienced elevated claims or lawsuits.
For instance, some experts have suggested the coronavirus could create workers compensation claims similar to the decades-long battle over asbestos. The insurance covers salaries and medical expenses of workers who are injured at work.
New revenue has also become more difficult to generate. The Hartford expects a 15% decrease in new business premiums during the second quarter.
“We are in the middle of a slow-moving storm,” said Swiss Re Chief Financial Officer John Dacey.
Insurance stocks are reflecting the mixed outlook. The S&P 500 index has risen 29% since its low in March but the S&P Life and Health Insurance index is up 49%, buoyed by health insurers.
Investors may get some more insight as other major insurers report results through the rest of May.
Berkshire Hathaway Inc
American International Group Inc
Germany’s Allianz SE
(Reporting by Alwyn Scott in New York and Suzanne Barlyn in Washington Crossing, Pennsylvania; Additional reporting by Noor Zainab Hussain in Bengaluru, Carolyn Cohn in London, Tom Sims in Frankfurt, and Herb Lash in New York; Editing by Lauren Tara LaCapra and Nick Zieminski)
