Hiscox’s capitalisation can absorb additional COVID-19 business interruption losses despite earnings impact, says global ratings agency S&P Global Ratings.
S&P believes the Supreme Court’s recent COVID-19 BI decision has further depressed Hiscox Group’s earnings.
The U.K.’s Financial Conduct Authority brought forward a test case to determine whether certain holders of business interruption insurance are entitled to payouts due to the pandemic.
Following the appeal, the Supreme Court’s final judgement indicates that insurers must pay more of these claims than they had hoped.
However, the rating agency still expects Hiscox’s capital position to remain supportive of its ratings.
Hiscox estimates that its total pandemic-related claims arising from business interruption for 2020 could be less than $180 million, net of reinsurance. This is $48 million higher than the estimate Hiscox published in September 2020, before the final appeal judgement.
S&P expects a substantial loss for full-year 2020 of up to $300 million and a combined ratio in excess of 110%. However, Hiscox’s capital is expected to absorb these losses.
It raised equity of approximately $465 million in May, which S&P argues it provided them with additional capital resilience.
S&P still believes that Hiscox will improve its operating performance in 2021 with a combined ratio of 95%-97% and a return on equity of at least 4%.
Its stable outlook indicates that S&P expects Hiscox to maintain levels of capital reasonably well above the ‘BBB’ range under its model over the next three years.
It will still be monitoring future potential implications of the pandemic for Hiscox’s business, particularly for its brand and reputation, as well as its financial position.