How the Pandemic Will Impact the Residential and Commercial Insurance Industry
Investors See the Potential for Gains
The insurance industry is facing numerous difficulties during the COVID-19 pandemic. Companies have been hit by huge claims and legal conflicts with clients.
However, despite these challenges, investors are allocating billions of dollars into the insurance industry and betting that the pandemic may end up benefiting insurance companies in the long term.
Insurance Companies Raise Funds
Insurance companies have recently been approaching pension funds, private equity firms, and sovereign wealth funds to raise money to back new business. Reinsurance broker Willis Re estimates that the insurance industry has already raised $13 billion through this recent fundraising push.
Companies are also using other strategies to raise funds. Munich Re, the largest reinsurer in the world, got rid of its share buyback program so it will have more capital on hand. Reinsurer Third Point Insurance (TPRE) recently entered a $3.3 billion merger with Sweden-based Sirius (SG), and in the process raised $50 million from Dan Loeb, Third Point’s fund manager.
Rising Insurance Prices
According to the insurance broker Marsh (MMC), the price of commercial insurance jumped by 19% during the second quarter of the year after rising 14% during the first quarter. Some sectors of the market have seen even more significant price spikes. For example, the price of directors and officers’ liability insurance in the US jumped by 59% during the second quarter.
The pandemic has accelerated the trend of rising insurance prices, but a wave of hurricanes in 2017 as well as wildfires and more hurricanes in 2018 also pushed prices up. Insurance companies may need to lean on their beefed-up balance sheets as COVID-19-related fallout continues, but many investors are hopeful that when the pandemic eventually subsides, the insurance industry will come out ahead.
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