Friday 5 February 2021 12:23 pm

Exclusive: 'Pool Re' style scheme could help insurers fund Covid-19 cover, says Beazley CEO

The CEO of insurer Beazley is hopeful that insurers will be able to provide cover against infectious diseases like Covid-19 in the future, but said a government backstop may be needed to press ahead.

It is not possible to get insurance on Covid-19-related cancellation cover on events this year, because the chances of an event being cancelled due to coronavirus is too high.

Beazley CEO Andrew Horton told City A.M: “I’m hoping in a more normal world that we can get used to living with infectious diseases and start giving cover.

“[But] we’ve got to work out what that world looks like, and then cover can come back, but we may need a government backstop because the insurance industry can’t afford to pay out on all business interruptions as a result of Covid – we’d all go bust.”

Read more: Cheers: Substantial meal rule to be scrapped when pubs reopen

Horton said insurers were already in discussions with government on how a backstop might work for insurance against pandemics.

He said it could be the case that a ‘Pool Re’ style of scheme could be created to cover pandemics in the future.

The Pool Re scheme was established in the UK in 1993 in response to restrictions in the scope of terrorism reinsurance cover available to the UK commercial property insurance market.

The scheme covers losses resulting from an act of terrorism, and is unusual because the government provides an unlimited backing to the scheme through a loan facility. Investing insurers have contributed over the decades to the pool to effectively insure together against terrorist events.

$50m loss at Beazley

Beazley provides cover for events ranging from major conferences, music tours and sports tournaments to village fetes, weddings and birthday parties, and as a result has been hammered by a wave of cancellations and postponements due to the global health crisis.

In total, its Covid-19-related losses now stand at $340m.

Beazley saw a loss before tax of $50.4m in 2020, down from a profit of $4267.7m the previous year, as the coronavirus pandemic took a toll on the firm.

The insurer, which manages six Lloyd’s syndicates, saw return on equity of three per cent for its 2020 financial year, down from 15 per cent in 2019.

Read more: Insurer Beazley slips into underwriting loss as catastrophe costs jump

Beazley provides cover for events ranging from major conferences, music tours and sports tournaments to village fetes, weddings and birthday parties, and as a result has been hammered by a wave of cancellations and postponements due to the global health crisis.

Insurers across the board have been hit hard by the pandemic. The Bank of England warned in November that insurers were being too optimistic in their Covid-19 estimates.

Elsewhere, a report released last summer suggested the world’s top most valuable insurance brands could lose as much as $100bn in brand value as a result of the crisis.

Beazley chair David Roberts described the loss as “disappointing,” adding that the pandemic had impacted a number of lines of business at the insurer.

“The spread of Covid-19 has triggered a deep global recession and widened existing wealth and health divisions, having a more extensive effect on society than one could have imagined,” said Roberts.

“It has tested the insurance industry and our role in protecting society against risk and unforeseen events. It has also demonstrated the need for collaboration across the industry and government to deliver solutions that protect populations from the biggest threats of our time, from pandemics to natural catastrophe, and from climate change to cyber-attack and terrorism.”

Read more: Insurance, disrupted: What does the start of 2021 tell us about the industry?

Elsewhere, the number of premiums written at the firm increased by 19 per cent to $3.5bn, up from $3bn last year.

CEO Horton added: “Despite the harsh effects of the pandemic and a deep global recession, we are optimistic that the positive market change of the last 12 months and the resilience that we have demonstrated puts us on a strong financial and operational footing to support our clients and to grow profitably in 2021.

“We expect to deliver a low-90s combined ratio for 2021 assuming average claims experience.”

Following publication of Beazley’s results the company’s share price rocketed to the top of the UK’s midcap index, thanks to the optimism expressed by the insurer after a challenging year.

The company’s shares shed 34 per cent in 2020 in their worst annual loss since their listing in 2002.

Read more: Barclays CEO on the future of the City: ‘Forget Frankfurt and Paris’

Share:
Tags: