Lloyd’s market set to pay out up to US$4.3bn to customers

Written by Adam Cadle

18/05/2020

Lloyd’s of London will pay out in the range of $3bn to $4.3bn to its global customers as a result of the far-reaching impacts of COVID-19.

Lloyd's said this is on a par with 9/11 in 2001 and the combined impact of hurricanes Harvey, Irma and Maria in 2017, all of which led to similar pay outs by the Lloyd's market. These losses could rise further if the current lockdown continues into another quarter.

Lloyd’s believes that once the scale and complexity of the social and economic impact of COVID-19 is fully understood, the overall cost to the global insurance non-life industry is likely to be far in excess of those historical events.

To understand the impact of the pandemic on the global non-life insurance industry, Lloyd’s undertook an economic study of the potential losses. This looked at both underwriting losses through the Profit and Loss Account, as well as the reduction in the value of investments which insurance companies hold to fund future claims payments. The economic study took account of the current pay out estimates assuming continued social distancing and lockdown measures through 2020, as well as the forecast drop in GDP globally.

The estimated 2020 underwriting losses covered by the industry as a result of COVID-19 are approximately $107bn, on par with some of the biggest major claims years for the industry, such as when three catastrophic windstorms have struck (2005: hurricanes Katrina, Rita and Wilma; 2017: hurricanes Harvey, Irma and Maria). Importantly, these natural catastrophes were geographically contained events, occurring over the course of hours and days – vastly different in nature to the global, systemic and longer-term impact of COVID-19.

In addition, unlike other events, the industry will also experience falls in investment portfolios of an estimated $96bn, bringing the total projected loss to the insurance industry to $203bn.

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