BI Claims Casting Dark Shadow Over EMEA Underwriters

Rating firm Fitch has said the looming impact of business interruption (BI) claims has forced the firm to play a waiting game before it can fully assess the impact of COVID-19.

The company held a webinar examining the impact of the pandemic on the EMEA market and while the firm had been busy working out the potential effects the threat of court action around BI claims has forced the firm to pause for thought.

Harish Gohil, Head of EMEA Rating said the biggest likely losers would be the non-life underwriters which may well see their ratings downgraded if the claims become too high.

Currently in the EMEA 58% of the firms Fitch rates have seen no change in their ratings with 25% placed on a negative outlook. Twelve percent have been downgraded with the majority of those in the Italian non-life market.

Mr Gohil added that the concerns over the level of BI claims had resulted in the firm reserving the ability to take action if they are a level which threatens firm’s capital bases.

“It is quite possible that some of the firms we have already reviewed may well have to take back to committee if things change,” he added.

Analyst Graham Coutts (pic) explained: “The problem with the BI claims is that at present they are very tricky to quantify.

“We have a situation where most insurers believe they have little to no exposure to BI claims as they are normally triggered by physical damage.

“While they may have looked to quantify the losses for the property book, we do not have real idea of the exposure levels as the insurers do not think they have them.”

Mr Coutts added that Hiscox had sought to quantify the potential losses if policyholders are able to successfully challenge the policy wordings in the courts as anything from £1 million to £250 million.

“We are monitoring the situation and looking at whether we may need to change our assumptions in the future,” he added. “If judgements go against insurers, we might see some negotiated settlements out of court, but the concern at present is simply a level of leakage of some cases which will go against the underwriters.”

Mr Coutts said they firm were watching the progress of UK regulator, the Financial Conduct Authority’s efforts to fast track a number of legal judgements on a range of BI wordings in an effort to deliver some clarity on insurers’ duty to pay claims under policy wordings that are currently under dispute.

“A widescale retrospective imposition of cover which has been discussed does not seem to be a likely outcome at present,” he added. “The London market has a broad exposure to the United States and while there may well be the potential for individual states to take action, it is likely to be on an individual judgement basis.”