Hiscox lifts pandemic BI estimate by $48m net of reinsurance after Court decision

Hiscox Group, the insurance, reinsurance and third-party capital backed underwriter headquartered in Bermuda, is again the first to release a statement following this morning’s announcement that the UK Supreme Court found largely in favour of insurance policyholders in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case appeals.

Hiscox has announced that, as a result of the ruling, it may now face an additional estimated $48 million of pandemic related business interruption claims, all net of reinsurance recoveries.

Analysts believe Hiscox has reinsurance to cover a portion of any increase to its pandemic claims provisions, so it looks likely the company will be able to recover something as this increases its estimate.

The company welcomed the announcement of the settlement and said that the outcome of the Supreme Court’s Judgment confirms that less than one third of Hiscox’s 34,000 UK Business Interruption policies may respond to claims.

So the impact could have been far more significant to the re/insurer, had the judgement meant more policies responded.

Hiscox explained that, “As a result of the Judgment as well as further government restrictions announced during 2020, the total Hiscox Group 2020 COVID-19 estimate for business interruption increased by $48 million net of reinsurance. In addition the previously disclosed additional loss estimate of up to $40 million for event cancellation if government restrictions continued into 2021, will now be recognised in our 2020 financial result due to the expectation that covered events will be cancelled.”

The re/insurer also explained that, “The Group estimates exposure to restrictions already announced in 2021 at less than $20 million if restrictions extend to the end of March,” referring to the current lockdown in the United Kingdom and how that could also drive more claims.

It’s impossible at this stage to know how much reinsurance coverage Hiscox may be able to rely on, but with today’s judgement relevant to some 50 insurers, if they can all tap their reinsurance the overall share of pandemic BI claims flowing to reinsurers could be a reasonable dent to their quarterly earnings.