Fitch agrees with rivals that High Court BI ruling poses limited threat to insurers

Fitch Ratings today joined rival ratings agencies in stating that the High Court's ruling on business interruption (BI) claims caused by the Covid-19 lockdown will not threaten the solvency of the UK and international insurance market. Fitch agreed with many experts that the ruling was actually limited because it only focused on a narrow set of policy wordings. As a result, the ratings agency does not think insurers will have to revise their public estimates of expected Covid-19-related losses or face potential downgrades. The statement from Fitch follows similar statements issued by AM Best, Moody’s and DBRS Morningstar, which agreed that the ruling would not have a material impact on the affected insurers' creditworthiness despite the fact that, on the whole, it favoured the policyholder. “The Financial Conduct Authority (FCA) took the position of policyholders in the test case, which focused on the policy wording… that specifically mentioned certain inclusions for infectious disease and/or related government actions. Insurers had denied coverage on these policies under various arguments that BI coverage did not apply to the coronavirus and related government actions. Importantly, the test case did not specifically consider any other forms of policy wording, nor did it explore issues such as the general enforceability of the property damage trigger or specific pandemic exclusions,” explained Fitch. “The judgment went against insurers in several areas. The court rejected, in most instances, insurers' arguments that their BI policy wording restricted coverage to disease outbreaks centred on the affected business's premises or the immediate vicinity, and excluded losses linked to a nationwide outbreak such as the coronavirus. The court also ruled that most policy wordings were not tight enough to require specific diagnosed cases of coronavirus infection to support claims,” it continued. Fitch explained that the court did rule in favour of insurers in some areas. “Usually, policy wordings meant that cover for BI losses due to business closures during lockdown should be based on a strict definition of lockdown when closures were mandatory. Losses incurred before or after this period would generally not be covered. Similarly, businesses that continued to operate with reduced services, such as restaurants switching to a takeaway service, would generally not be eligible for BI claims due to mandatory closure of premises,” it said. Fitch said that BI claims are likely to be one of the main costs from the pandemic for the UK non-life sector, along with claims for event cancellation. The ratings agency said that the claims will affect underwriting results for the rest of the year and may not peak until 2021, particularly where litigation is involved. The heaviest impact will be felt within the Lloyd’s and wider London market, which provides most BI cover for UK businesses. The ratings agency also noted that the ruling will probably not prove to be the end of the matter. “The FCA, or the insurers involved in the case, could still appeal against the judgment, and it could take several months for a final ruling,” pointed out Fitch.

Fitch agrees with rivals that High Court BI ruling poses limited threat to insurers

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