face mask covid19
iStock.com / domin_domin

The decision to hold the upcoming summer Olympics without fans will likely cost the global reinsurance sector hundreds of millions of dollars in ticket and travel refunds — but that’s better than the billions that scrapping the games altogether would have cost, says Fitch Ratings.

In a new report, the rating agency estimated that banning spectators will cost reinsurers between $300 million and $400 million (all figures in U.S. dollars) in refund coverage.

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

Indeed, it said cancelling the Olympics “would have led to the largest ever insured losses” from the cancellation of a single event, “adding to pressure on reinsurers’ earnings.”

Fitch estimated that the total insurance coverage for the Olympics is about $2.5 billion, including $1.4 billion for the International Olympic Committee (IOC) and the Tokyo Organising Committee, along with $800 million by broadcasters and $300 million by others (teams, sponsors and hospitality venues).

“We believe reinsurers would bear most of the losses arising from this cover given that high-severity exposures are typically heavily reinsured,” it said.

Allowing the games to continue, albeit without spectators, should limit reinsurance payouts to coverage for ticket sales and hospitality.

More fundamentally, “The pandemic has led insurers and reinsurers to rethink some of the cover they provide and how they price it,” Fitch said.

Historically, insurers assumed that cancellation risks for different events wouldn’t be correlated with one another.

“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,” it said.

As result, insurers need to factor in the threat of correlated risks, along with the potential for “extra-large aggregated losses when correlated risks crystallize together,” Fitch said.

Additionally, Fitch said that cyber risk could be the next area where widespread catastrophe losses are triggered by a single event, “which could lead insurers and reinsurers to rethink the cyber cover they provide.”