Australian insurers IAG and Suncorp have both announced that they have lowered their COVID business interruption (BI) reserve provisions after a recent court ruling on the issue.
Last week, the High Court of Australia opted to deny special leave to appeal the judgment of earlier verdicts by the Federal Court regarding the interpretation wordings on COVID BI policies.
There had been speculation that the ruling could help to encourage more certainty among reinsurance capital providers in deploying to Australia, as there were expected to be some cases where cedents had reserved high for possible COVID recoveries they now won’t get.
And now, IAG has confirmed that it will undertake a share buy-back of $350 million, funded by a reduction in its BI provision following the court decision.
The company has reduced its net BI provision from $975 million to $615 million, having previously suggested that it would refine this provision as the legal position became more certain.
Similarly, Suncorp says that “the majority” of its $179 million provision for potential losses due to COVID BI claims as at June 30th will now be released, again reflecting the outcome of High Court case.
The Full Court of the Federal Court delivered its judgment back in February 2022, when it decided to uphold the arguments of insurers in four of the five matters in the test case which were appealed.
The Court found that in those four matters the insurers were not liable to indemnify the policyholders.
In the other case, the Full Court upheld the earlier decision to the effect that cover had been triggered but that there were substantial issues as to whether the policyholder could prove any relevant business interruption.