COVID-19 was declared to be the third largest cost to insurance companies of any catastrophe in history after Hurricane Katrina and the 9/11 attacks, with losses of up to $44 billion, according to the insurance broker Howden, in a Jan. 4 report on reinsurance renewals.
This amount is lower than the initial 2020 projections of $100 billion-plus for COVID-19 insured losses.
It seems increasingly improbable that the new Omicron variant will have anything more than a mild effect on the economy.
Industry analysts in the early days of the pandemic came up with the larger estimate after governments across the world instituted lockdown mandates and event cancellations.
COVID-19 claims since then have been excluded from many insurance policies.
“There’s only so much event cancellation coverage out there, there’s only so much civil action coverage out there, and when you get to $40 billion, that’s pretty much exhausting what was underwritten,” said David Flandro, head of analytics at Howden, responding to Reuters.
The firm’s Jan. 1 renewal report observed a reset in the reinsurance risk landscape, as a new series of megatrends are beginning to alter the already complicated underwriting landscape.
It announced that in addition to lingering COVID concerns, megatrends such as higher inflation, lackluster investment yields, elevated catastrophe loss activity, climate change, new cyber threats, and heightened risk aversion could make the market landscape more challenging to predict.
The industry’s new outlook would be “closely tied to macroeconomic developments, and inflation in particular,” according to the report.
Inflationary risks due to price pressures are emanating predominantly from goods rather than services, as the impact on long-tail lines will be determined “in large part by whether rises can be contained to these items, as well as policymakers’ success in avoiding a multi-year wage price spiral.”
“A more benign environment could yet see conservative reserving through the pandemic deliver material reserve releases, and help alleviate pressures on insurance buyers that are four years into higher rates and tighter terms whilst still confronting new waves of COVID in what remains one of the toughest trading environments in recent memory.”
The firm reported that property catastrophe reinsurance rates increased by 9 percent, which was higher than the 6 percent recorded last year, and the biggest year-on-year increase since 2009, taking the index back to 2014 pricing levels.
A separate report this week by reinsurance broker Guy Carpenter showed global property catastrophe reinsurance rates rising by 10.8 percent on average this year.
The report added that $26 billion of new capital, which entered the market over the past two years since the pandemic, has placed the insurance sector in a strong position to tackle any changes.
With insurance capital currently at record levels, and premiums rising on the back of higher pricing and heightened risk awareness, the market could manage these new challenges as it remains resilient and well-capitalized, said Flandro.