April 7, 2021 by Greg Meckbach
The pandemic will cost the global insurance industry at least US$200 billion, Lloyd’s predicts.
“We estimate that the global insurance industry will pay around US$203 billion in claims and due to a reduction in asset values as a result of COVID-19,” Lloyd’s said in its annual report for 2020, released Mar. 31. The United States dollar Apr. 1 was trading at Cdn$1.26, meaning US$203 billion is worth Cdn$256 billion.
The Lloyd’s market paid out £3.4 billion in COVID-19 related claims in 2020. The British Pound was trading Thursday at Cdn$1.74.
COVID-19 was declared a global pandemic Mar. 11, 2020. A month later, Lloyd’s predicted that the P&C industry would have underwriting losses of US$107 billion in 2020 from the pandemic.
By comparison, the global insurance industry lost US$40 billion on the 2011 earthquake and tsunami that hit Japan, and US$27 billion on the Sept. 11, 2001 attacks that destroyed the World Trade Centre buildings in New York.
Lloyd’s reported Mar. 31, 2021, that incurred COVID-19 losses of £3.4 billion added 13.3 points to the Lloyd’s market’s combined ratio, which was 110.3% in 2020. So without COVID-19, the Lloyd’s market would have had an underwriting profit.
The Corporation of Lloyd’s is not an insurance carrier but oversees the market. Fifty-six syndicates are entities that provide capital and ultimately pay out on claims losses.
The last time Lloyd’s combined ratio was less than 100% was in 2016, when it was 97.9%. The combined ratios in 2017, 2018, and 2019 were 114%, 104.5%, and 102.1% respectively.
Overall, the Lloyd’s market had a £2.53-billion profit in 2019 because the investment results that year more than offset the underwriting loss.
But in 2020 the Lloyd’s market’s overall loss was £887 million. Net investment income was £2.27 billion while the underwriting loss was £2.68 billion.
“While 2020 will forever be remembered as the ‘year of COVID-19’, the market has suffered threats from two other fronts,” wrote Lloyd’s CEO John Neal.
First, there was uncertainty and turmoil over Britain’s exit from the European Union, Neal observed.
Second, 28 catastrophes in 2020 each cost the industry more than £1 billion, noted Neal.
“By way of comparison, in 2017 (the year of Hurricanes Harvey, Irma and Maria), there were 18 of these insured events [of more than £1 billion each].”
Feature image via iStock.com/Tera Vector