The recent High Court ruling on the COVID-19 business interruption (BI) insurance test case, brought by the Financial Conduct Authority (FCA), is unlikely to have an adverse impact on the ratings of UK non-life insurers, says Fitch Ratings.
The recent judgement went against insurers in a number of areas, and while the potential for appeals means that this will take some time to resolve, carriers might well have to pay BI claims originally rejected owing to policy wording.
It’s been well documented throughout the pandemic that BI insurance is primarily designed to provide coverage for losses from BI as a result of property damage. Furthermore, other causes, such as infectious diseases, are typically excluded from these types of contracts.
This meant that in the case of the pandemic, most businesses that were forced to close or curtail operations as a result of government enforced lockdowns were unable to claim under their BI policies, which came as a surprise to some.
However, as noted by Fitch, policy wording is key and a number of UK firms sold policies that specifically covered BI in the event of an infectious disease, a government action in an emergency, or a combination of the two.
But despite the court ruling in favour of insureds on a number of key issues, which has resulted in additional COVID-19 BI claims estimates from some re/insurers, Fitch believes that the “ratings of UK non-life insurers are likely to be unaffected”.
The ratings agency notes that based on company estimates following the judgement, “the amounts likely to be involved appear within ranges already disclosed by the affected insurers and considered by Fitch in its ratings sensitivities.”
So far, Hiscox, RSA, QBE, and Zurich have responded to the High Court’s ruling. While Hiscox, RSA, and QBE provided loss estimates related to the ruling, of which reinsurance is expected to come into play, wordings represented by Zurich reportedly do not provide cover for BI in relation to the crisis.
Alongside claims for event cancellation, Fitch expects BI claims to be one of the main costs from the pandemic for UK non-life players.