Reinsurers globally face  up  to more than half a billion in losses as a result of Japan’s decision to hold the Tokyo Olympics without spectators  because of a resurgence in COVID infections, Fitch Ratings said.

Organisers  announced  earlier this month  the move to completely ban fans from the Summer Games, expanding a decision  made  months ago that spectators from outside of the country would  not be allowed to attend the pandemic-delayed sporting showpiece, which starts this week.

Fitch says its  estimate of $US300-400 million ($400-534 million)  in reinsurance payouts should be mostly limited to losses from ticket sales and hospitality refunds.

The rating agency does not expect the projected losses to materially affect earnings,  particularly given the reserves that reinsurers had already set aside in  anticipation of potential claims payouts.

Had the Games been cancelled, the cost would have been more significant, Fitch said. The Tokyo Games was supposed to have taken place last year but was pushed  back to  July 23 to August 8 because of the coronavirus pandemic.

“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 said.

“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 US casualty reserve deficiencies, and following several years of high natural catastrophe losses.”

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,” the rating agency said.

“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.

“To assess the insurability of risks, and to price accurately for them, insurers and reinsurers need to factor in correlation such as this, as well as the potential for extra-large aggregated losses when correlated risks  crystallise  together.”

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

It says renewed 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 said.

Fitch says it believes  cyber risk could give rise to the next widespread catastrophe losses triggered by a single event, which could lead insurers and reinsurers to rethink the cyber cover they provide.