Insurers are breathing a sigh of relief as the Olympics are finally underway after continuous speculation and uncertainty of the games since its first delay in March 2020 due to the global pandemic.
Fitch rating agency estimates the total insurance coverage for the Olympics to be about $2.5 billion, including $1.4 billion purchased by the International Olympic Committee and the Tokyo Organizing Committee, $800 million by broadcasters, and $300 million by sports teams, sponsors, hospitality, and others.
Global reinsurers are likely to face $300 million to $400 million in losses from ticket and hospitality refunds due to Japan’s decision to bar spectators from the Tokyo Olympics.
The local Organizing Committee will face most of the brunt for that, having simply exhausted its resources due to the postponement of the games. The postponement itself has cost hundreds of millions to the insurers.
But this is only 10% to 15% of the loss’s reinsurers would have faced had the Olympics been cancelled and should have a limited impact on earnings, leaving capital and ratings unaffected, Fitch said. Insurance around big events is certain to change with new rules already stating that Insurers are not liable for events cancelled due to communicable diseases.
We believe reinsurers would bear most of the losses arising from this cover given that high-severity exposures are typically heavily reinsured,” Fitch said in the report.
Cancellation of the Olympics would have led to the largest ever insured losses from a single event cancellation, putting pressure on reinsurers’ earnings already hit by the pandemic and U.S. casualty reserve deficiencies, and following several years of high catastrophe losses, Fitch said.
With the Olympics now set to go ahead, though, without spectators, reinsurance payouts should be mostly limited to losses from ticket sales and hospitality, the report said.
Given the reserves that reinsurers had already set aside for potential losses, this should not materially affect earnings, Fitch said.
Event cancellation policies are typically multiyear, so it will take time for the existing risk exposures to run off, Fitch said.