BI claims present an “existential threat” - Willis Re

Broker Willis Re has warned that many insurance companies will end up holding more risk than anticipated relative to their balance sheets as the COVID-crisis unfolds. It currently estimates the global reinsurance sector will take a 5% hit to its capital base, roughly US$30 billion pre-tax.

The risk from business interruption claims presents “an existential threat to the entire industry”, given growing calls to revise coverage retroactively and the colossal, if notional, aggregate limits deployed irrespective of contract agreements in place.

Overall, the industry is facing formidable practical, operational, legal, and technical reserving challenges, it states.

James Kent, Global CEO, Willis Re, said: “With uncertainty on both sides of the balance sheet, a capital squeeze is becoming increasingly likely. The most successful strategies will see executive teams assimilate the current trading environment as it relates to them directly, respond with clarity and direction with support from their advisory partners, and articulate to relevant stakeholders an appropriate route forward.

“Reinsurance capital will play a key role in supporting this future direction as companies seek to support the rehabilitation of the global economy, with the insurance industry continuing to be a fundamental element in supporting the recovery efforts of its customers.”

Andrew Newman, President, Willis Re added: “The impact of COVID-19 on global reinsurer capital is broad enough that it may exacerbate non-life reinsurance market hardening, particularly in commercial lines. We may see supply and demand imbalances in some areas, so insurers should be taking steps to reduce the risk of being on the wrong end of any market hardening.”