Zurich Insurance May Take Up to $750 Million Hit

(Bloomberg) -- Zurich Insurance Group AG may have to pay out as much as $750 million this year due to the coronavirus as it grapples with rising claims and volatile markets that have already triggered profit warnings at rivals.

Europe’s second-largest insurer by market value said the claims will hit its property & casualty unit, with $280 million recognized in the first quarter. The estimate is subject to significant uncertainty, Zurich said in a statement on Thursday.

While insurers probably haven’t seen the worst of the Covid-19 crisis Zurich follows rivals Axa SA and Allianz SE in sketching out an outline of the impact. Profit across the industry will be under pressure from lower revenue and higher claims from event cancellations, bankruptcies and business interruptions. Some areas may be a bright spot, such as car insurance where less driving will result in fewer road accidents.

Zurich sees the majority of claims coming from business interruption, Chief Financial Officer George Quinn said on a call. That includes companies that have lost profits due to the virus’s spread and the ensuing lockdowns across much of the world. Zurich also expects virus-related claims from travel, accident and health insurance, he said.

The stock was little changed at 277.50 Swiss Francs ($285) in Zurich trading as of 9:46 a.m. The shares have dropped 31% this year, compared with a 33% decline for Germany’s Allianz and a 39% retreat for Paris-based Axa.

While insurers are used to making large payouts, the coronavirus claims will weigh on profits this year and may be larger than the $700 million losses from hurricanes Harvey, Irma and Maria recorded in 2017.

Industry Forecast

Germany’s Allianz in April withdrew its earnings forecast for the year due to uncertainty caused by the pandemic, while it’s giant bond-investment unit Pacific Investment Management Co. saw its worst outflows in five years when the onset of the coronavirus pandemic sent retail clients fleeing. French competitor Axa predicted a material dent to 2020 earnings.

The outbreak hit the industry “like a meteorite,” Allianz Chief Executive Officer Oliver Baete said last month, with business disruptions across industries fueling claims while chaotic markets cause investment values to tumble. Axa has said it expects total potential event cancellation claims related to Covid-19 is in the mid-triple digit million euros, adding that it is too early to estimate business interruption claims.

Zurich has moderate exposure to business interruption claims in the Europe, Middle East and Africa and North America regions, though risk over canceled events is limited, the company said in a presentation. The company expects a significant fall in premiums this year at its travel insurance business with flights grounded and holidays in much of the world on hold.

Zurich said revenue and earnings will also be hit by poor financial markets and weaker economies. Gross written premiums at the property and casualty unit rose 5% in the first quarter from a year earlier to $9.68 billion.

UBS analysts expect insured losses from the virus to be in a range of $30 billion to $60 billion. While the bank remains confident European insurers’ balance sheets can withstand the hit, the level of uncertainty remains high, analyst Jonny Urwin wrote last month.

©2020 Bloomberg L.P.