By Charles E. Boyle
July 6, 2009
Michael Jackson’s untimely death, barely two weeks before he was to begin a long awaited series of 50 concerts, stretching over 8 months, continues to be headline news. It’s also news of another sort in the City of London, where rumors, announcements, speculation and a great deal of silence sums up current knowledge about what event cancellation coverage may be involved.
Other than Jackson, who had hoped the tour would revive his flagging career and help repay an estimated $400 million in debts, the biggest loser so far seems to be AEG Live, the L.A.-based promoter of the concerts. The company is part of billionaire Philip Anschutz’s empire, and, according to an article from the Associated Press, it stood to collect about 5 percent to 10 percent of the gross ticket revenue of $90 million to $100 million, plus as much as $15 million from concession and merchandise sales.
AEG also owns the O2 Arena in East London where the concerts were to have been staged. They were virtually sold out with an estimated $90 million in tickets already ordered. A number of companies who sold them, starting with AEG, but also including EBay, Seatwave, Lastminute.com and viagogo, are now faced with refunding the money, which they have indicated they will do promptly.
Since Jackson’s death AEG has revealed that it has an £11.7 million ($18.87 million) “life insurance” policy with Lloyd’s [See related article in “National” section]. It has also offered ticket holders the option of keeping, or receiving, the holographic concert tickets as souvenirs, which could have substantial value for future memorabilia collectors. The policy proceeds, plus the ticket sales would reduce AEG’s losses. However, the company also faces the prospect of 50 empty nights at London’s premier concert venue, which will be hard to replace.
There will be an impact on the London insurance community, but just what form it will take is at present unclear. There is some event cancellation coverage. The question is how much, and who were the brokers and underwriters that participated.
London’s Insurance Insider, usually a reliable source, especially for Lloyd’s, has said that there was coverage for only 3 out of the 50 concerts, and that the probable loss for the London market is around £14.5 million ($24 million). Other estimates have indicated that there may be coverage for as many as 10 of the events. No one has said that all 50 were covered.
In a personal interview, Lloyd’s spokesmen Bart Nash confirmed that there were Lloyd’s syndicates, who had written coverage of some of the concerts, but declined to give any figures, indicating only that the losses would not be “significant.”
Sue Langley, Lloyd’s Director, Market Operations and North America, said: “As yet we [Lloyd’s] really haven’t received any claims, but this does not appear to be a substantial loss.” They both seemed to more or less accept the Insider’s estimates as being realistic, and indicated that a certain percentage of that amount would eventually be paid by Lloyd’s.
The “life insurance” policy referred to above appears to be essentially accidental death or disability coverage. It’s reported to specify a payment if Jackson cannot perform due to external causes, including drug related circumstances, which are currently the subject of an investigation in Los Angeles.
“We [Lloyd’s] do have some contingency liability,” said Louise Shield, Lloyd’s director of communications in a telephone interview. However, she indicated that the amounts currently being discussed would in all probability include the “life insurance” payment.”I think they’re probably one and the same,” she said. She also cautioned, however, that this could change as more precise information becomes available.
Langley explained that, as Lloyd’s is a subscription market, it takes time to calculate what any potential losses might be, Not only for the leading syndicate, but also for those who accepted a portion of the risk, and those that reinsured part of it. “For the most part they are public companies,” she said, “and therefore they have to be extremely careful to assure that any statements they make are accurate.”
Event cancellation policies typically cover the costs of cancelling the events, including promotional expenses, outlays for decoration, sets, equipment etc. They can also cover loss of estimated earnings from the cancelled event. However, event cancellation insurance is highly specialized. A number of commentators, including Chris Rackliffe, an underwriter at Beazley, cited in the AP article, have noted that few, if any, insurers would have been prepared to take on the risk of an artist with Jackson’s problems. “His prior history, the fact of his health and the difficulties he has had in his life over the last few years means that, from our point of view, he would have been very high risk,” he said.
Lloyd’s CEO Richard Ward underscored the high risk factor at Lloyd’s annual press party on July 1. “If anybody has underwritten coverage on all 50 concerts I certainly want to know about it,” he said in a personal conversation.
The Insider also said that the lead insurer was Lloyd’s Talbot Underwriting Syndicate, a unit of Bermuda-based reinsurer Validus, which responded immediately with a denial. “Talbot Holdings, Ltd. has limited potential exposure to any contingency loss arising from the untimely death of Michael Jackson,” said the bulletin. “The Company announced that, despite press reports to the contrary, Talbot is not the lead underwriter on the Lloyd’s placement and has a maximum net exposure of less than US $3 million, net of reinsurance recoveries and reinstatement costs.”
At this point little more is known about the London market’s exposure to losses following Jackson’s death and the concert cancellations. It may in fact take some months before actual figures are revealed. But it seems fairly certain that the losses will be minimal.
Sources: press reports, as indicated and personal interviews