The Coronavirus outbreak which is causing so much social and economic upheaval is not expected have a material impact on the financial performance of Lloyd’s of London or any of its syndicates.  Whilst the epidemic is still developing and the incidence of the disease is spreading far from its source in China’s Hubei province, there are few, if any, indications that major insurance losses will arise.

Although Chubb CEO Evan Greenberg was talking about his own company when he said on 5th February that “We have a very small, almost non-existent accident and health business in China [and] imagine modest impact from everything we can tell, from economic slowdown or economic activity” it is a view that has been echoed by in the Lloyd’s market.  The impact of the Coronavirus has been to disrupt supply chains, airline travel and has sadly caused hundreds of deaths around the world.  This disruption could continue for some time.  However, it is our expectation that these events will not result in material claims on Lloyd’s syndicates.

In general, multinational and large domestic manufacturing businesses with supply chains in China may well experience disruption resulting in lost or delayed income, but the majority of business interruption insurance policies require physical damage (examples include fire, flood or earthquake) at a supplier’s premises.  Sometimes, policy cover is extended to instances where the government acts to prevent access to or egress from a plant or location and we understand that some companies sought extended bespoke cover in the wake of the SARS outbreak of 2003.  It is possible that these factors could contribute to loss on a number of policies.

The health and life aspect is, currently, mainly focused on the Chinese mainland.  Lloyd’s and western insurers generally have a very low penetration in personal insurance lines in China where domestic insurers like Ping An, PICC and China Life have a prominent position in a growing market.  Consequently we expect little health or life claims to be picked up by Lloyd’s.  There may be some syndicates in the accident and health market with exposure to travel policies; this is a small part of the overall book at Lloyd’s.

Another potential exposure at Lloyd’s is the contingency market.  Should large-scale events such as the Shanghai Motor Racing Grand Prix on April 19th, the Hanoi Grand Prix on April 5th or the Tokyo Olympics be cancelled or impacted by the Coronavirus outbreak, then undoubtedly a number of Lloyd’s syndicates would be impacted.  These types of policies are written in the London and international markets and are in appetite for many of the syndicates on which our clients participate.  As yet, none of these events have been cancelled, and may not be.  However if the outbreak continues to spread, such cancellations may occur.  In a similar vein, albeit at a smaller level, there may be some cargo policies insured at Lloyd’s which have a rejection of cargo clause – typically for products like frozen fish, frozen meat and agricultural products transported in temperature controlled environments.  We would expect any such claims to be of minimal scale.

One insurance product – albeit with no Lloyd’s involvement – that may be exposed and triggered is the International Bank for Reconstruction and Development’s (IBRD) pandemic bond which was structured by Swiss Re and Munich Re with a $320m limit.  The bond has parametric triggers including an outbreak reaching predetermined levels of contagion, including number of deaths; the speed of the spread of the disease; and whether the disease crosses international borders.  Lloyd’s is not exposed to the bond, but it does show how some organisations are looking to manage and finance large-scale risk.  We expect more of these types of products to come to market in the future and believe that Lloyd’s will have a role to play in due course.

As with most virulent epidemics, it is difficult to predict future developments.  Nevertheless, as things stand today, we do not expect that there will be more than a small number of claims arising out of the Coronavirus outbreak that will find their way into Lloyd’s.  We will, of course, continue to monitor and will update clients should circumstances change.