Non-proportional reinsurance, excess of loss and per event, is the first solution for the coverage of pandemic risks. It comes into play in case the claim amount to be disbursed for a pandemic exceeds a given ceiling set in keeping with a joint agreement between the insurer and the reinsurer, with a top limit liability negotiated between both parties.
A second reinsurance solution is possible via the securitization [4] of pandemic risks. This financial reinsurance scheme has been gathering momentum since the start of the 2000s. Insurers and reinsurers have made increasing recourse to this method in order to protect themselves against natural catastrophe risks.
A new risk, the pandemic is currently ruled out of most reinsurance treaties [5] of classical natural catastrophe risks and of the covers of financial nature.
It all depends on the markets, however. In the Europe, Middle East, Africa (EMEA) region, reinsurers underwriting on the German and Scandinavian markets seem to be the hardest hit. The UK reinsurance market was also affected, but to a lesser extent.
Two unions, Hiscox and Beazley, are said to be particularly concerned by COVID-19. Nearly 48% of the 1.4 billion premiums written by Beazley are likely to include a pandemic exposure. This rate rises to 36% for Hiscox. This is an exposure risk and not a claim affecting direct underwriting and reinsurance. The property damage, civil liability, business interruption, cancellation of events and political risks classes would be the most impacted.
Munich Re is also paying a high price for the event cancellation guarantee. The Bavarian insurer has signed a cancellation contract for the Tokyo Olympics worth several hundred million euros. The German giant hopes to reduce its loss, the Olympics being officially postponed [6] and not cancelled, leaving some room for maneuver.
The cancellation of the Wimbledon tennis tournament has cost 175 million USD to the insurance market.
As the scope of the current pandemic is completely new, reinsurers were not prepared for such a situation. As a result, many reinsurance treaties, particularly in terms of damage, are not entirely clear as to whether or not this risk should be excluded. This editorial vagueness will result in lengthy negotiations between insurers and reinsurers on whether or not to assume claims.
It is therefore very likely that the risk of a pandemic will be systematically excluded during future renewals, particularly in the treaties covering disasters.