UBS Predicts Up To $60B In Global Insurance Virus Losses

By Martin Croucher
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Law360, London (April 24, 2020, 2:30 PM BST) -- The insurance industry could face global losses of up to $60 billion on coronavirus claims, UBS said in research released Friday, although the bite is unlikely to threaten the finances of individual insurers.

The major Swiss bank said it had revised its initial projection of a loss of between $20 billion and $40 billion, made this week, to between $30 billion and $60 billion, the result of growing uncertainty about the scale of business interruption exposures.

The analysis, set out in in a research note, said there was "still a lot of guesswork" in the new numbers. They were extrapolated based on market share from announcements by Beazley and Hiscox, which said this week they face a combined $345 million in potential losses from the pandemic.

UBS predicts that because the impact would be spread globally it will be unlikely to hit individual companies significantly hard. "For most companies, this should be an earnings event, not a capital event," the note said.

UBS predicts that business interruption claims, paid to companies forced to close from government lockdowns in the form of lost earnings, could contribute between $7 billion and $22 billion to the total claims.

The difference in estimates will depend on policy wordings, UBS said, noting that the terms in Hiscox's business interruption contracts are "looser than some peers." The company faces group litigation from more than 200 businesses that claim their policies protect against forced closure from contagious disease outbreaks.

Credit and surety, which is insurance against default by a contractual partner, will probably make up $8 billion to $16 billion of the claims.

Concern that a wave of insolvencies could lead to heavy losses for credit insurers has prompted some governments — notably Germany and France — to float plans for government support to the sector. The Association of British Insurers confirmed at the beginning of the week it was in talks with the government to effectively subsidize cover by acting as a "reinsurer of last resort."

UBS said government backstops could mitigate some of those losses. In addition, with most of the large players in trade credit, like Germany's Euler Hermes, being heavily reinsured up to 50% of their premium, the losses are likely to be felt most keenly by reinsurers.

The note said that $5 billion to $7 billion of losses could come from cancellations of major events like the Olympics and Wimbledon, while $4 billion to $6 billion could result from workers' compensation, which protects against employees suing businesses for negligence.

--Editing by Alyssa Miller.

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