Speaking on the latest edition of The Insurer TV’s flagship analysis programme, Brooks warned that Covid-19 remains “a live cat” as we move into 2021.
“While original estimates came out at an industry loss of $70bn to $100bn, there is definitely a mind the gap delta miss at the moment when you look at what is actually booked into the market – around $30bn – this delta is causing a huge issue in that no one knows where it is going to go.”
The extent to which Covid-19 claims will reach those earlier forecasts remains uncertain, although Stephen Catlin, the 48-year industry figurehead who co-founded Convex in 2019, is in no doubt that losses from the event will reach a triple-digit billion-dollar amount.
He cites the dynamics of the losses the industry is currently experiencing – both from Covid-19 and broader casualty losses – as a driving factor behind the extent to which the direct market, rather than reinsurance, has led market hardening in the current cycle.
“There’s a lot of exposure out there where there is loss which hasn’t yet fully been recognised,” Catlin says in the latest edition of the analysis programme.
With Covid-19, he suggests it is “almost as if everybody had kicked it into the long grass”.
“They’ve kicked the can down the road,” he warns, “but the trouble is every time you kick the can, it gets bigger and heavier.”
Catlin believes the magnitude and “enormity” of the economic loss that is going to be experienced by the industry “is well understated at the moment”.
“And as that changes, which it will have to over time, so pricing will have to reflect that.”
Catlin’s view that the market is at the beginning of a state of change is reflected by comments from another senior industry figure, Guy Carpenter’s chairman David Priebe.
Priebe said loss implications from Covid-19 were not as disruptive at 1 January as had been feared earlier in 2020.
“But this issue will likely come to bear in 2021. In many ways, because of the complications around that, that challenge was pushed further out into the equation.”
Covid-19 losses to date have been predominantly driven by event cancellation and business interruption. While there is potential for additional losses in these classes – an Olympics cancellation, for example, would drive substantial additional event cancellation claims in 2021 – these exposures will be limited over time by wordings revisions, many of which were central to 1.1 negotiations.
But the casualty picture remains far less clear, and is likely to remain so for some time.
As Brooks warns, “at the moment there is an element of ‘let’s stick our head on the sand and worry about it a bit later’.”
Reinsurers will need to exercise caution as they monitor these risks, and price accordingly, making sure they don’t kick the can too far down the road before realising the need to address the issue.
For more insights, watch the full episode of our latest The Insurer TV flagship analysis programme below, in which we examine the recent 1.1 renewals and interpret what the outcome means for the year ahead…