UK BI ruling credit negative for (re)insurers but costs manageable, says Moody’s

The Supreme Court’s ruling on Covid-19 business interruption (BI) claims is a credit negative for UK (re)insurers and will broadly lead to additional losses, but the financial impact should be manageable for insurers net of reinsurance protection, said Moody’s Investors Service. Moody’s added that the clarity provided by the judgment will end “damaging” disputes between insurers and their clients. The Supreme Court's judgment dismissed all insurers’ appeals on certain disease and prevention-of-access clauses, following an initial ruling by the UK’s High Court in September. The Supreme Court also allowed the Financial Conduct Authority’s (FCAs) appeal on behalf of policyholders, in a resounding victory for insurance buyers. The FCA bought the test case on behalf of policyholders after insurers rejected BI claims following enforced business closures as a result of government measures to slow the spread of Covid-19. The Supreme Court ruled that cover may be available for partial and full closure of premises, as well as for mandatory closure orders that were not legally binding. It also ruled that valid claims should not be reduced because the loss would have occurred in any event as a result of the pandemic. This means that more policyholders will have valid claims and some payouts will be higher, said Moody’s. The ruling sets precedents that could widen the scope for increased claims in the future. Specifically, the Supreme Court decided that the Orient Express case, which insurers had relied on in their arguments on causation, should be overruled. According to the FCA, the judgment means that BI policies are more likely to respond to other types of wide area damage such as storms or floods. The outcome of the case is thought to affect about 370,000 policyholders holding 700 types of policies issued by 60 insurers, according to the FCA. Having lost the case, insurers now face Covid-19-related BI claims in excess of £1bn from policyholders directly and indirectly affected by the Supreme Court ruling. However, the loss could be much larger if other policyholders now come forward and notify insurers, following the outcome of the appeal. However, Moody’s said the financial impact of the judgment on UK insurers specifically affected by the ruling should be manageable net of reinsurance. Hiscox estimates an increase in its BI claims of $48m net of reinsurance, following the judgment. Meanwhile, RSA does not currently expect its net loss estimates in relation to the policies before the court to change materially from those previously reported. QBE said that although the gross cost of UK insurance BI claims will increase as a result of the ruling, the net cost remains unchanged at $70m. Moody’s added that the clarity provided by the Supreme Court will help end damaging disputes between insurers and policyholders, and bring about clearer cover moving forward. “There has clearly been a mismatch between policyholder and insurer expectations regarding BI coverage. To avoid further reputational damage to the industry, we foresee clearer policy wording and more explicit explanation of SME insurance policy coverage limits,” it said.

UK BI ruling credit negative for (re)insurers but costs manageable, says Moody’s

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles