Covid-19 Impact: Lloyd's Of London Expects £5 Billion In Insurance Pay-Out for The Year

Summary

• The world’s biggest insurance market, Lloyd’s of London expects up to £5 billion to be paid out in claims related to Covid -19
• The claims related to the Covid-19 pandemic amounted to £2.4 billion in the first half of 2020
• Most of the general insurance companies believed that the loss arising out of property business is not covered under the business interruption policy.
• FCA has brought an expedited test case before the UK courts on behalf of policyholders to seek clarity and specific guidance on the application of cover for business interruption insurance products

Businesses and people across UK are looking up to the insurers for pay-outs to get some relief due to the carnage caused by the deadly pandemic. The world’s biggest insurance market, Lloyd’s of London expects up to £5 billion to be paid out in claims related to the catastrophe caused by the novel coronavirus. The claims related to the Covid-19 pandemic amounted to £2.4 billion in the first half of 2020, which eventually led to a loss of £400 million during the period.

UK’s largest mutual insurer, Royal London, has paid out £8.5 million in life insurance claims to the families of people who died due to Covid-19. In addition, the insurer has provisioned £10 million in anticipation of future claims.

Most of the general insurers across the UK have been impacted due to travel cancellations, event cancellations and business interruptions caused due to coronavirus pandemic.

Do read: UK Insurers to See A Surge in Travel Insurance Policy Demand Post 31 Dec 2020

Let us put our lens through Non-life insurance companies and learn about the Covid-19 impact on their health.

Direct Line Insurance Group Plc (LON:DLG)

There was a mild impact on the health of the company due to the coronavirus pandemic. Higher claims costs in Travel, business interruption along with higher operating expenses were offset by lower claims costs in Motor insurance segment.

The company estimates the net impacts of Covid-19 on travel and business interruption claims at £25 million and £10 million respectively, unchanged from the first quarter of 2020. The Company has launched initiatives with an estimated full-year investment of £80 million to £90 million to support the customers and local communities through the unprecedented crisis created by Covid-19.

• The Company has delivered a robust performance in the first half of 2020; has recommenced dividend pay-outs as well.
• The gross written premium of the company increased by 0.4 per cent year-on-year (H1 2020), due to strong premium growth recorded in the first quarter of 2020.
• The company witnessed growth across Green Flag, Motor and Commercial direct own brands.
• The Board proposed an interim ordinary dividend per share of 7.4 pence during the first half of 2020, up by 2.8 per cent year-on-year

FTSE 250-listed General Insurance group, DLG shares last traded at GBX 300.20 on 11 September 2020. Since the lockdown (23 March), the stock has delivered a price return of more than 32 per cent.

Hiscox Ltd (LON:HSX)

The novel coronavirus has shaken the general insurance sector. Most of the general insurance companies believed that the loss arising out of property business is not covered under the business interruption policy. This has been a matter of dispute among the policyholders and the insurance companies.

UK's conduct regulator for financial services, Financial Conduct Authority (FCA), to seek clarity and specific guidance on the application of cover for business interruption insurance products offered across the industry has brought an accelerated case for hearing before the UK courts on behalf of policyholders. Hiscox believes that the legal system is a tried and tested route to resolving contract disputes.

• The company has earmarked a sum of $232 million for COVID-19 related claims across the Group for claims arising from event cancellation and abandonment, travel, and media and entertainment.
• The Group's gross premiums written reduced by 4 per cent in constant currency to $2,235.5 million in the first half of 2020 (2019: $2,337.5 million).
• The company did not furlough any staff, which demonstrates its operational resilience.
• The company is looking forward to bolstering its product offering by investing in technology and digitisation.

FTSE 250-listed General Insurance group, HSX shares last traded at GBX 750 on 11 September 2020. The shares have fallen by nearly 48 per cent in the year till date scale.

Do read: UK Insurers Back Down on Coronavirus Policy Dispute

RSA Insurance Group Plc (LON: RSA)

FTSE 100 listed RSA Insurance group’s statutory profit before taxation in the first half of 2020 was down by 7 per cent to £211 million due to COVID-19 financial market impacts. The investment income of the company was impacted by COVID-19 to the tune of £6 million; down by 13 per cent to £134 million.

• During the first half of 2020, RSA booked 39 thousand claims related to travel along with 2,700 claims related to wedding cancellations, with an estimated cost of £35 million in total.
• RSA looks forward to FCA’s test case on business interruption coverage wordings with respect to property business
• Considering the premiums, claims and investment income of the business, the net impact of Covid-19 on the company is neutral

FTSE 100-listed General Insurance group; RSA shares last traded at GBX 469.90 on 11 September 2020. Since the lockdown (23 March), the stock has delivered a price return of more than 43 per cent.

Beazley Plc (LON:BEZ)

Beazley Plc has estimated $170 million in pandemic-related losses across segments. The company’s political, accident and contingency division has been severely impacted by the mass cancellation of events triggered by the coronavirus pandemic.

• Despite achieving a solid growth of 12 per cent in the top line (Gross premiums written), as three of the seven divisions achieved double-digit growth during the first half of 2020, higher volume of claims arising from COVID-19 translated to a loss before tax of $13.8m during the period
• The first half of 2020 was defined by claims arising due to the economic impact of COVID-19 pandemic

FTSE 250-listed General Insurance group; BEZ shares last traded at GBX 397 on 11 September 2020. The shares have fallen by nearly 30 per cent in the year till date scale

1-Year Comparative Share Price Chart: DLG, HSX, RSA, and BEZ

(Source: Refinitiv, Thomson Reuters)

The non-life insurers are under immense pressure from falling equity markets and interest rates, which can impact the insurers balance sheets, profitability, and sale of insurance-related products in the medium term. Moreover, the event cancellations and business interruption claims have severely impacted the businesses of the companies.