Tuesday, April 7, 2020

“Then we have just three months less economic growth”

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London The corona crisis is a controversial topic in the executive floors. On the one hand there are managers like private equity man Alexander Dibelius, who think that government action is exaggerated and fear for the economy. On the other hand there are those who first of all see a humanitarian crisis and trust the experts.

Burkhard Keese belongs to the second camp. “I stick to the testimony of our Jürgen Klopp,” says the CFO of the British insurance market Lloyd’s of London. “I’m an expert on finance, not public order or epidemics.” The Liverpool coach had declared himself not responsible with a similar saying when asked a question about the virus.

The corona crisis is a humanitarian crisis that affects him personally, says the former Allianz manager, who has been working in London since last year. You have to do everything the experts advise you to do. And if that means less economic growth, “then we have just three months less economic growth”.

The British insurance company will also feel the corona shock in its own balance sheet. First, there is the stock market crash. By the low of March 19, Lloyd’s’s investments had dropped £ 1.8 billion, Keese says. That is a lot of money, but given the total assets of £ 70 billion, “no drama”. And so far there are only losses on paper, he emphasizes.

On the other hand, Lloyd’s should also face significant insurance claims. The damage cannot be estimated yet, says Keese. Because, unlike retail policies, corporate contracts are all individually different. “All syndicates at Lloyd’s are now going through their inventory and looking where we have really been met,” he says. The result of this test is not expected before May.

Travel insurance, event failure insurance and possibly business interruption insurance are affected. The latter often has a pandemic exclusion clause. That’s why every contract and every word counts, says Keese. With event cancellation insurance, you also have to ask whether damage has really occurred if the event is only postponed. Like the Tokyo Olympic Games, which are now scheduled to take place a year later in 2021.

A cyclone hits insurers harder

According to Keese, it is not yet possible to estimate whether the stock market loss or the insurance loss will be greater at the end. It also depends on what politics do, he says. In the United States, for example, discussions are already underway to intervene retrospectively in insurance contracts.

However, the pandemic is unlikely to be as expensive for insurers as a major hurricane. Swiss Re recently estimated the cost of event default insurance to be six billion euros. For comparison: The storm “Dorian” last year cost ten billion euros, says Keese. “And that was a little storm.”

In any case, Lloyd’s is well prepared for the corona crisis, as shown by the figures for Thursday of the past year. The company returned to the profit zone after two years of losses. The profit was £ 2.5 billion – a whopping 3.5 billion more than last year. The group benefited above all from the stock market upturn and the good performance of its investments. The insurance business, on the other hand, made another loss.

The solvency ratio used to measure a company’s capital strength stood at a good 238 percent at the end of the year. By March 19, however, it had dropped to 205 percent due to the stock market turmoil. That is no cause for concern, says Keese. “We want to stay at 200 and could go down to 150 at most.”

When things get tight, however, Lloyd’s can always ask its members to make up for the losses. That is the advantage of an insurance market, says Keese. “We can recapitalize much faster than any other insurer.”

More: Italy is on the verge of bankruptcy due to the corona crisis

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