Briefing: Pandemic impact on financial results is not over yet

By Editor Katie Scott

The flurry of full-year financial results being published by insurers in quarter one shows that the sector has certainly not been immune to the economic fist fight that followed the onset of Covid-19.

Just this morning (31 March 2021), Lloyd’s of London revealed that its net incurred Covid-19 losses amounted to £3.4bn last year. Furthermore, it anticipates that its pandemic-linked payouts will reach £6.2bn on a gross basis. These are not small numbers.

Unfortunately, Lloyd’s has not been alone in seeing profits dwindle thanks to coronavirus.

Charity-owned insurer Ecclesiastical, which was involved in the High Court proceedings around business interruption (BI) claims, said earlier this month that it paid out £18.7m for coronavirus-related claims last year.

The business also recorded a £15.7m loss before tax for 2020, compared to a £73.3m profit before tax in 2019, thanks to the effect of the pandemic on financial markets.

A similar pattern can be seen at insurer Hiscox, which received additional media attention during the FCA’s test case thanks to numerous action groups.

In the 12 months to 31 December 2020, the insurer recorded a loss before tax of $268.5m, compared to a $53.1m profit before tax in 2019. Plus, the business reserved a total $475m to cover the costs of the pandemic.

In February, RSA reported that its 2020 premium income fell by £166m thanks to the pandemic, while Allianz said its total impact of coronavirus-related business interruption claims was £175m in 2020, net of reinsurance – it also saw a 5.6% decline in gross written premium (GWP) in the 12 months to 31 December 2020 due to the economic impact of the Covid-19 pandemic.

Sabre also noted a drop in GWP, which it attributed to the effect of recurring lockdowns – this dropped to £173.2m for the year ending 31 December 2020, compared to £197m in 2019.

All in all, not a very rosy picture depicting last year’s financials – and understandably so.

Following the Supreme Court’s judgment in January, BI claims costs could have a further impact on insurers’ Q1 and first half year results as additional policyholders submit or progress claims with their fingers crossed after being refused a payout last year.

For example, the FCA revealed this month that following the Supreme Court decision in January around Covid-19-related BI claims, insurers have so far paid out just under £472m in interim and final BI claim payouts across 10,207 claims.

However, if Boris Johnson’s road map for emerging from lockdown is successful, then the grass could be greener in H2 for insurance businesses, especially once road traffic resumes to more normal levels and a greater level of commuting recommences.

Personal lines insurers have definitely fared better financially.

Earlier this month, for example, Direct Line Group confirmed in its 2020 full-year results that “the impact of the Covid-19 pandemic was a modest net benefit to the result”, while Ageas only recorded a 2% drop in gross income over 2020.

Top of the podium

Admiral Group, however, could be said to be the true winners depicted from the litany of financial fact sheets.

In March, it reported that its statutory profit before tax had improved by 20% in the 12 months to 31 December, rising from £505.1m in 2019 to £608.2m last year.

Admiral Group also recorded a 2% improvement in its group turnover, from £3.46bn to £3.55bn, while group net revenue grew by 8% to reach £1.31bn for 2020 versus £1.21bn in 2019.

Last April, the insurer issued an £110m automatic refund to all its car and van insurance customers, recognising that policyholders were driving less during the pandemic. To my knowledge, it was the first insurer to make strides in this direction and the reputational goodwill generated could very well have influenced its financial success as customers flocked to the brand.

This is shown within its year-end results: group-wide, Admiral’s customer base expanded by 10% in 2020 to hit 7.66 million, versus 6.98 million in 2019. In the UK specifically, Admiral Group’s customer base grew by 9% to reach 5.98 million compared to 2019’s 5.48 million customer pool.

However, the pandemic is far from over yet – even if there is now light at the end of the tunnel.

Insurers’ financial results will still be heavily impacted by pandemic-related claims trends this year, in my opinion. The extent of this impact will, in part, be determined by the UK’s route out of lockdown, as well as more controllable metrics such as reserving and underwriting practices.

It may be time for insurers to start crossing their fingers too.