Lloyd's of London Ltd.'s coronavirus losses are likely smaller than its market share would suggest, according to CEO John Neal.
Speaking to journalists Sept. 10 about the London-based insurance market's first-half earnings, Neal said that while it was difficult to benchmark, as it differed by class of business, on a macro level, "we think we are underweight COVID, not overweight."
Lloyd's announced Sept. 10 that it expects its ultimate coronavirus claims bill to be £5 billion gross of reinsurance and £3 billion net, of which it booked £2.4 billion in the first half. Lloyd's CFO Burkhard Keese told journalists that 80% of the £2.4 billion was reserving for incurred but not reported claims, meaning that only 20% of the amount has been paid out so far.
Neal said Lloyd's participants are "big underwriters" of event cancellation cover, which makes up 41% of the Lloyd's coronavirus claims bill, and that the loss there was "in line with market share." He added that he believed Lloyd's was "slightly ahead of the curve" on reserving for events that could be canceled but have not yet been.
But he said "we are genuinely underweight" on the other lines, such as property, which accounts for 25% of the coronavirus claims bill. He added: "We are not a big domestic [U.K.] SME insurer, we are not a big credit insurer, and I think the real value of those losses are yet to be translated into the P&L."
One area of uncertainty is whether insurers will have to pay non-damage business interruption claims they had originally denied if test court cases go against the industry. The judgment on the U.K.'s business interruption test case, brought by the Financial Conduct Authority, will be handed down Sept. 15.
Neal said the claims provisions Lloyd's had set aside gave "some consideration" of the outcome of test cases, and that Lloyd's had run 16 different stress scenarios against the potential outcomes. Taking the mean of those scenarios puts the cost to Lloyd's "in the low hundreds of millions" of pounds, Neal said, adding that the low number was "not a surprise" given that Lloyd's is not a large domestic insurer in the U.K. He added that the challenge from the court cases sits "with the domestic insurers in the U.K."
He said Lloyd's had increased its resources and capacity to deal with policyholders that "find themselves in challenging circumstances post those decisions and want to have conversations," and so "operationally and economically we are ready for the outcomes of the court next Tuesday."
Lloyd's estimated in May that the insurance industry as a whole would face underwriting losses of $107 billion from the coronavirus pandemic. Neal said the estimate still held, adding that "others are still catching up" in disclosing claims hits. He said companies were "incrementally reporting their COVID loss, so I think there is a lot more to come through."