Olympics Without Fans to Cost Reinsurers Far Less Than Cancellation: Fitch

Japan’s decision to bar spectators from the Tokyo Olympics is likely to cost the global reinsurance sector $300 million to $400 million due to payouts for ticket and hospitality refunds, Fitch Ratings says.

However, this is only 10%–15% of the amount reinsurers would have faced had the Olympics been cancelled, and its impact on earnings should be limited, leaving capital and ratings unaffected.

Fitch analysts estimate the total insurance cover for the Olympics to be about $2.5 billion, comprising $1.4 billion taken out by the International Olympic Committee and the Tokyo Organising Committee, $800 million by broadcasters and $300 million by other parties, such as sports teams, sponsors and hospitality firms.

The analysts believe reinsurers would bear most of the losses arising from this cover given that high-severity exposures are typically heavily reinsured.

However, cancellation of the Olympics would have led to the largest ever insured losses from a single event cancellation, adding to pressure on reinsurers’ earnings from the pandemic and U.S. casualty reserve deficiencies, and following several years of high natural catastrophe losses.

With the Olympics now set to go ahead, but mostly without spectators, reinsurance payouts should be mostly limited to losses from ticket sales and hospitality. Total reinsurance losses, likely to be $300 million–$400 million, should not materially affect earnings, particularly given the reserves that reinsurers had already set aside in anticipation of potential losses, according to Fitch Ratings.

Fitch says the pandemic has led insurers and reinsurers to rethink some of the cover they provide and how they price it. In the past, they may have considered cancellation risks for different events to be mostly uncorrelated. However, the pandemic has highlighted how mass cancellations can happen simultaneously due to a single trigger, with even mega events, such as the Olympics, potentially at risk, according to the analysts.

Furthermore, the pandemic has led the insurance market to generally stop covering losses resulting from communicable diseases, although cover for event cancellation due to other causes is still available as before.

Renewal insurance policies for event cancellation now exclude cover for losses due to communicable diseases, which should shield insurers and reinsurers from losses resulting from further lockdowns to fight the coronavirus pandemic or future pandemics. However, event cancellation policies are typically multi-year, so it will take time for the existing risk exposures to run off, Fitch noted.

Top Photo: The Olympic Symbol is reinstalled after it was taken down for maintenance ahead of the postponed Tokyo 2020 Olympics in the Odaiba section Tuesday, Dec. 1, 2020, in Tokyo. (AP Photo/Eugene Hoshiko)