How much the second COVID wave will probably add to Intact’s claims costs

Intact Financial Corp. has now reserved $106 million for claims related to COVID-19, with $23 million of that booked during the last three months of 2020.

Intact initially set aside $83 million in reserves for COVID-19 claims during the three months ending Mar. 31, 2020, shortly after the disease was declared a global pandemic.

Now the second wave of COVID-19 caused Intact to take an additional $23 million charge in the fourth quarter, CEO Charles Brindamour suggested Wednesday during a conference call discussing Intact’s 2020 financials.

Liability exposure in Canada is one reason why Intact is setting aside additional reserves; another reason has to do with entertainment lines in the United States, said Patrick Barbeau, Intact’s senior vice president of claims.

“The cost on our entertainment policies is much higher when events are cancelled than on when they are postponed,” said Barbeau. “Initially there was a lot of events that were postponed, and we are [now] anticipating that some of them will be cancelled in light of the intensity of Wave 2.”

As for liability in Canada, this does not pertain to business interruption claims, said Barbeau. He was alluding to Intact’s earlier estimate that 99.5% of its BI policies require some form of physical damage in the wording.

With COVID-19 liability claims, some Canadian clients are being sued by plaintiffs alleging negligence and Intact has a duty to defend those lawsuits, said Barbeau. Plaintiffs still have to prove negligence in order to win their lawsuits.

“It’s not really linked to specific cases – just the increase of activity from the second wave that has led us to decide to add some reserves in Canada,” Barbeau said of the $23 million COVID-related charge in 2020 Q4.  An investment banking analyst had asked Intact officials for examples of claims that contributed to the Q4 charge of $23 million.

Despite the Q4 COVID-19-related charge, Intact reported Tuesday its combined ratio improved 6.3 points from 94.5% in 2019 to 89.1% in 2020.

When Intact took an $83 million COVID-19 charge during the three months ending Mar. 31, that was the result of a decision on how much money the insurer should set aside for commercial claims arising from the pandemic. Liability was the most important part of that exposure, and part of that liability could be from long-term care homes, Brindamour said in June of 2020 during a “virtual fireside chat” with Mike Phillips, equity research analyst for p&c insurance at Morgan Stanley. Intact was also predicting claims from U.S. commercial clients for entertainment lines and for tuition reimbursement.

Intact officials were asked this past July, during the 2020 Q2 earnings call, about Intact’s exposure to business interruption claims from the pandemic.

“The language in our polices is very clear,” Barbeau said at the time. “The business interruption coverage requires direct physical damage from an insured peril to be triggered. This is the case for 99.5% of our policies in commercial lines.”

How much COVID-19 could cost the global P&C industry was on the minds of analysts during Chubb Limited’s 2020 earnings call. “We had pegged that underwriting loss somewhere in the US$70 to US$80 billion range and I think it is ultimately going to play out there,” Chubb CEO Evan Greenberg said Feb. 3.

At the moment, the industry has pegged the ultimate claims cost from COVID-19 at US$35 billion to US$40 billion, Greenberg said, adding that number “is going to continue to climb.”

Feature image via iStock.com/exxorian