The seaport in Beirut, Lebanon, is shown after the massive explosion Aug. 4.
Source: AP Photo
It is "pretty certain" that the Aug. 4 explosion the Lebanese capital of Beirut will be "a major loss" for Hannover Rück SE, according to the reinsurer's property and casualty head, Sven Althoff.
Hannover Re classifies major losses as those that generate claims in excess of €10 million, gross of retrocession. Althoff added that it was "impossible for me to comment right now" on whether the loss to the reinsurer would be in the low-double-digit, high-double-digit or even triple-digit millions of euros.
A large explosion hit the Lebanese capital city's port Aug. 4, with the BBC reporting that at least 100 people were killed and 4,000 others injured. Lebanese officials are attributing the explosion to 2,750 tonnes of unsafely stored ammonium nitrate, the BBC said.
Answering an analyst's question about the blast on a call for Hannover Re's first-half earnings, Althoff said the impact on infrastructure would be "massive." He added that while it was too early to determine the insurance penetration in the affected area, because the blast hit an industrialized harbor area, "we have to assume there is a good level of penetration here, so from that point of view, I guess you will see this on our major loss list on the third quarter."
Althoff said the company was "very, very sorry to see this tragedy happening yesterday."
Hannover Re reported a 72.5% drop in second-quarter net profit to €101.5 million from €368.9 million in the same quarter of 2019. This was largely because of a €380 million reserve for coronavirus-related property and casualty claims, taking the total coronavirus reserve booked for the first half of the year to €600 million.
Althoff said that of the €600 million, 40% was for business interruption, 25% for credit and surety, 20% for event cancellation and contingency, and the remaining 15% for other business, including travel and engineering. Roughly 80% of the reserve is for incurred-but-not-reported, or IBNR, claims — those which the reinsurer expects to receive but so far has not.
Hannover Re CEO Jean-Jacques Henchoz told analysts that the high level of IBNR factored into the €600 million P&C reserve "could bring us a lot closer to our final estimate for the COVID-19 impact."
One uncertainty is court battles being fought over denied coronavirus business-interruption claims. Althoff said the €240 million business interruption portion of the reserve assumed no retroactive change to coverage in the U.S., but took a "balanced view" on court cases in Europe and elsewhere.
"If all these cases should go against insurers, then the €240 million number would not be sufficient. If insurers should win all cases, then the €240 million would be a prudent number," he said.
On the life and health side, Hannover Re booked coronavirus-related losses of €63 million for the first half, of which a little over 50% was for the U.S. Unlike the P&C reserve, the life coronavirus number contains a "relatively small" amount of IBNR claims, according to the reinsurer's life and health head, Klaus Miller.
He said life and health coronavirus claims could be "slightly higher" in the second half than they were in the first, but added that it depended on whether the U.S. "starts managing the pandemic or not."