Although event cancellation insurance represents a very small percentage of overall property/casualty premium, the losses for carriers that write this line of business amid the COVID-19 outbreak still could be significant, according to a new AM Best commentary.

Losses on this line of business could have a compounding effect as carriers navigate other lines of business exposed in the pandemic such as business interruption, directors and officers, and workers' compensation, as well as dealing with losses on assets, says the commentary, "Event Cancellation Insurers May Rethink Their Strategies."

One of the world's largest events, the Tokyo Olympic Games, was postponed until July 2021, the first such delay in the modern Games' 124-year history. The fact they have been postponed, as opposed to cancelled, could be a relief to insurers, according to some analysts.

Swiss Re has announced that it has a $250 million exposure to the Olympic Games in Tokyo, while Munich Re revealed it could have exposure amounting to hundreds of millions of euros. The postponement of the Games could have implications on insurers, depending on the individual contract terms, AM Best said.

AM Best notes that event insurance is a customized form of insurance, and every covered event is unique and policy wording can vary greatly. Limits can be as low as $500,000, and up as high as $10 million depending on the circumstances, and prices may vary as well.

The insured could be an event organizer, sponsor or venue, as well as other stakeholders such as caterers, entertainers and keynote speakers.

Communicable disease is not always a covered peril and the applicability of COVID-19 is uncertain. According to AM Best analysts, withdrawals by individuals from events owing to COVID-19 concerns are unlikely to be covered and prohibitions by local municipalities of gatherings of more than 150 persons or curfews that result in cancellations also would not be covered.

For events cancelled following national emergency announcements or state proclamations, event insurance could apply and insurers then would be responsible.

AM Best warns that insurers should be prepared for possible broader interpretations of contract language by courts and said "given the global impact of event cancellations, these interpretations could dramatically impact the results of event insurance providers."

Fitch Ratings noted that event cancellation is one area of insurance that may have losses, even though the overall impact of the coronavirus on P/C insurance industry should be modest. According to Fitch, industry experts anticipate coverage of approximately $2 billion for the Olympics event, with the large risk spread among several insurers.

While planners of events could have purchased pandemic coverage before the current outbreak, those trying to get pandemic coverage going forward are unlikely to find it. "As things stand at the moment, you would struggle to get coronavirus cover for any event, until we know where we are with this virus," Rebecca Mitchell, contingency underwriter at ArgoGlobal, told Reuters.

AM Best said that it is developing stress testing that it will conduct on its rated insurers' balance sheets to gauge the impact of the COVID-19 virus fallout on their risk-adjusted capital levels, investment portfolios, reserve adequacy and other aspects of the risks borne by rated entities.