According to reports in the French press, insurer Covéa is set to launch an arbitration with its reinsurer, Swiss Re, concerning COVID-19-related business interruption (BI) losses of at least €500 million.
Reports state that both Covéa and Swiss Re are in the process of selecting their arbitrators as tensions between insurers and reinsurers emerge on the interpretation of contracts.
As businesses of all shapes and sizes around the world ceased or curtailed operations amid government enforced lockdowns and restrictive measures, the ongoing COVID-19 pandemic has served to highlight ambiguities in BI insurance policy wording.
Yesterday, the UK’s High Court ruled in favour of policyholders on the majority of key issues concerning the Financial Conduct Authority’s (FCA) BI insurance test case. In response to the judgement in the UK, some of the re/insurers in question have announced estimated additional COVID-19 BI claims and noted that a sizeable slice of this is expected to be covered by their reinsurance protections.
However, in France, the insurance supervisor has not brought a case to court and unsurprisingly, differences of interpretations related to the application of guarantees, and therefore reinsurance protection, is likely to lead to arbitration procedures.
French media reports state that during the pandemic crisis, Covéa revealed that it would compensate 4,000 restaurant owners via its joint venture with Natixis Assurance, amounting to a total cost of around €180 million, before reinsurance recoveries. At the same time, MAAF Assurance SA, which is part of Covéa, booked “administrative closure” claims of an estimated €190 million related to 6,000 hotel and restaurant policies.
It’s reported that Covéa could be facing BI claims of at least €500 million, or even as much as €1 billion. As a result, Covéa will be looking to call on its reinsurance protection to limit its exposure, but owing to the complexity of the event and ambiguities in policy language around BI without damage, reinsurers could hold a different interpretation of contracts.
This seems to be the case with Covéa and Swiss Re, with both firms reportedly in the process of choosing an arbitrator to address the issue. The French press also reports that these two arbitrators will also select a third who will chair the arbitration procedure.
According to a recent industry survey, some 4% of BI contracts marketed in France feature ambiguous clauses and in response, reinsurers are increasing the number of exclusions to avoid potential costs and tighten up terms and conditions.