Travel Insurance Boost vs What has been advised30 Jun 2020 21:38
If you look on page 19 of the 2019 Annual Report and also look at the 2020 Q1 Update it is clear that they've overstated the Travel insurance losses they anticipate.
Basically they anticipated a £44m up front loss, not taking into account what they would pass on to their reinsurers.
However this was based on the assumption that there would not be loads of cancelled lights until 1 October! This is as per their early May RNS.
Now that the UK Govt has decided to allow people to travel to many parts of the world almost 3 months earlier than DLG had predicted, that £44m up front loss figure should reduce significantly.
Then, looking at the travel reinsurance policy DLG have taken out (as detailed on p.19 & 49 of the 2019 Annual Report), they've been very savvy in purchasing travel reinsurance which appears to work as follows:
£10m per Event which lasts more than 28 days.
£1m of which will be retained by DLG. The next £9m will go to reinsurers. = £10m
There's then 1 automatic reinstatement if that gets exhausted.
So the next £1m (in excess of £10m) is retained by DLG. The following £9m (in excess of £11m) would go to the reinsurers.
Upon this being exhausted, all other losses would be retained by DLG.
i.e. DLG would only retain £2 of the first £20m of losses due to COVID-19. They would then retain 100% of the losses thereafter.
It is for this reason that they said a £44m loss would result in about £25m being paid out by DLG themselves.
However if travel starts up again so early that the £44m figure reduces to £25m let's say, then DLG will only incur £7m of losses. Not the £25m they have told the market about thus far.
Consequently I believe the travel losses to DLG will be a fraction of what they have advised.
"In addition, the Coronavirus outbreak (specifically the disease COVID-19) has the potential to impact the 2020
result of our Travel business. We have currently incurred claims of around £1 million, the majority for customer trips
to regions where the Foreign & Commonwealth Office (“FCO”) advise against all but essential travel. We ask
customers to seek refunds or amendments to their trip from their travel provider in the first instance in line with
FCO guidance. We have Travel reinsurance protection to mitigate the cost of an event over a 28 day period to £1
million up to a limit of £10 million. The full coverage, if utilised, can be reinstated once on the same terms."
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