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Europe’s insurers could be hit with €80bn in Covid claims

Covid claims

That’s the equivalent of a mid-sized natural catastrophe event and claims would likely be in relation to event cancellation, business interruption and travel insurance policies

Europe’s property and casualty insurance sector could be hit with global claims of between €50bn and €80bn because of the pandemic, ratings agency Moody’s has estimated.

That’s the equivalent of a mid-sized natural catastrophe event, it noted, adding that claims would likely be in relation to event cancellation, business interruption and travel insurance policies.

But it said that some property and casualty insurers will also benefit from a sharp decline in motor claims due to lower vehicle usage during Europe’s economic lockdown.

Moody’s insisted that while the pandemic has had an adverse impact on the European insurance sector, the effect is manageable and will lead to a decline in company earnings rather than capital erosion.

We see the industry as resilient overall and believe it will be able to absorb the impact of the pandemic, leaving its capital broadly intact, said Christian Badorff, a vice-president and senior analyst at Moody’s.

The most severe long-term impact will likely be continued pressure on the sector’s investment returns due to a further fall in interest rates and an expected increase in corporate defaults, he added.

The ratings agency noted that central bank intervention has reversed much of the fall in equity markets and widening of credit spreads seen in the first quarter of the year.

It added that the insurance sector has taken advantage of attractive market conditions to boost its capitalisation by issuing hybrid debt.

Moody’s regards this development as a positive, as new issuance has only modestly increased the insurance industry’s leverage from a low level, according to the agency.

Moody’s said that life insurers are typically more dependent on investment performance and are therefore more exposed to low rates and market volatility than property and casualty insurers.

Insurers in Ireland have given some rebates to customers on their policy costs, but insurers are also facing legal challenges from some businesses that believe they are entitled to cover from the impact of the lockdown.

Stock market-listed insurer FBD has made a €22m provision in case it loses actions being taken by pubs that believe they are entitled to payouts for business interruption caused by Covid-19 health measures. FBD has insisted the relevant policies do not provide for cover of the pandemic. A hearing is due to take place in the commercial court in October. FBD also noted last month that motor insurance refunds would cost the company about €7m.

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