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QBE responds to UK BI test case ruling; expects to call on reinsurance

16th September 2020 - Author: Luke Gallin

In response to yesterday’s ruling by the UK’s High Court that largely favoured policyholders in the Financial Conduct Authority’s (FCA)’s business interruption (BI) insurance test case, insurer QBE has said that it expects its reinsurance protection to limit the net cost to $70 million.

QBEIn certain instances, yesterday’s judgement favoured insurers and reinsurers, but on some of the key issues surrounding COVID-19 related BI claims in the UK, the court ruled in favour of policyholder.

As a result, re/insurers that this judgement concerns have released additional estimates of UK BI claims exposure.

Australian insurer QBE states that based on the notified claims affected by the FCA test case, and having regard to individual policy sub-limits, the Group’s estimate of its UK BI claims exposure is approximately $170 million, before allowing for recoveries under its catastrophe reinsurance protections.

In line with its previous announcements, QBE expects that catastrophe reinsurance will reduce the net cost of BI claims in its UK insurance operation to $70 million (which formed part of the $335m net cost of COVID-19 allowed for in its recently announced H1 2020 financial result).

QBE explains that the court ruled in favour of the insurer with respect to two out of three of its notifiable disease policy wordings examined, and in favour of insurers generally with respect to denial of access policy wordings. But despite this, the court ruled in favour of policyholders with respect to one of the insurer’s notifiable disease policy wordings, and QBE says that it is considering an appeal of that decision.

“The FCA test case decision is highly complex and will take time for the industry to fully consider and for claims to be resolved. All parties involved now have an opportunity to apply to the Court for permission to appeal some or all of the ruling with a decision on any such application expected to be made in October,” explains QBE.

Of course, appeals are now expected and in light of this and further legal action, the gross cost to QBE and other re/insurers could increase or decrease in the coming months. However, QBE says that the net cost is not expected to vary.

The announcement from QBE follows that of Hiscox and RSA, both of which said yesterday that they expect their reinsurance protections to come into play and cover some of the additional COVID-19 BI claims.

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