Allianz CEO warns of ‘massive’ industry virus losses as Arch warns of big pandemic claims

Allianz chief executive officer Oliver Bäte has warned that the coronavirus has hit the insurance industry like a “meteorite”, will cause “massive” insured losses and could potentially turn the insurance business model on its head. Mr Bäte’s stark warning came as Bermuda-based insurance and reinsurance group Arch Capital disclosed that it faces losses of up to $145m already for coronavirus-related property and casualty (P&C) and mortgage insurance-linked losses, and is likely to post a total return on its core investment portfolio in the range of -0.65% to -0.95% The Allianz CEO told Bloomberg television that the recovery from the business closures across the German economy will probably take longer than people currently predict. “The coronavirus has hit our industry like a meteorite impact. There will be huge losses for the industry coming, it just takes a while for those to materialise,” he said. The validity of Mr Bäte’s warning appeared to be confirmed by the announcement from Arch Capital that its first-quarter numbers will be hammered by the virus. It said that it estimates pre-tax net losses of $85m to $95m across P&C insurance and reinsurance segments for exposure to Covid-19 global pandemic claims as of 31 March 2020. The insurer also estimates pre-tax net losses of $40m to $50m in the mortgage segment, as a result of financial stress caused by the pandemic. “These incurred losses are largely a result of our loss-reserving selections being set at the higher end of our range of indications across the mortgage segment as of 31 March 2020,” stated Arch. “On 11 March 2020, the World Health Organization declared a pandemic in relation to the outbreak of Covid-19. The outbreak is causing unprecedented social disruption, global economic volatility, reduced liquidity of capital markets and intervention by various governments around the world. Arch Capital Group expects impacts on incurred losses and premium volumes on its business, given increased market volatility and uncertainty,” it continued. The insurer admitted that these numbers are subject to change, given the huge uncertainty surrounding the development of the pandemic. “At this time, there are significant uncertainties surrounding the ultimate number of claims and scope of damage resulting from this pandemic. The company’s estimates across its insurance, reinsurance and mortgage segments are based on currently available information derived from modelling techniques, including that of our proprietary economic models related to the housing and mortgage insurance markets, preliminary claims information obtained from the company’s clients and brokers, a review of relevant in-force contracts with potential exposure to the pandemic, and estimates of reinsurance recoverables. These estimates include losses only related to claims incurred as of 31 March 2020,” stated the group. “Global financial markets experienced extreme volatility in interest rates, credit spreads and equity markets during the first quarter of 2020 as the pandemic materialised. The company expects to report net investment income of $110m to $115m for the first quarter of 2020. In addition, total return on its core investment portfolio (excluding Watford) is expected to be in the range of -0.65% to -0.95%,” added Arch, which will release its first-quarter results on 4 May.

Allianz CEO warns of ‘massive’ industry virus losses as Arch warns of big pandemic claims

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