By Oliver Ralph, FT today.
Just over half of the $203bn estimated loss relates to claims, with insurers expecting to pay out for events cancellation, business interruption and trade credit cover. Another $96bn comes from investment losses, where turmoil in financial markets has hit the assets insurers hold to fund claims. “This is a loss of a magnitude that none of us have seen in our lifetime,” said John Neal, Lloyd’s chief executive.
But that is general insurance.
What about life insurance firms, where the assets are long dated, and where the exposure is likely to be higher? All was fine, according to Sam Woods when questioned by the Treasury Committee in April, saying that insurers are “well capitalised”, and that despite “enormous movements in financial markets”, firms have “broadly weathered that quite well”, with ample coverage ratios, more capital than they need etc etc.
But then as Sam explained shortly after, that was all because of the mechanism working quietly in the background that cushions (or masks?) the market losses. Losses which could be huge, perhaps in the order of hundreds of billions. Sam is effectively saying that the mark to market losses will soon reverse themselves, because caused only by ‘short term volatility’. I.e. there are asset mark to market losses that could easily be in the hundreds of billions, but which the Sam, speaking for the Bank is perfectly confident will be reversed on a sixpence.
Sounds like a ‘buy’ signal to me.