QBE says cat reinsurance could pay $100m of UK BI after test case ruling

Following yesterday’s judgement by the UK High Court that found largely in favour of insurance policyholders in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case, Australian insurer QBE has said it could recover up to US $100 million of UK BI claims from its catastrophe reinsurance.

The judgement came through yesterday and while some elements went in favour of insurers, others did not and the upshot is elevated expectations of the claims some will have to pay for UK business interruption claims from the COVID-19 pandemic.

QBE was one of the insurers participating in the test case and it has responded by saying that while it expects gross UK business interruption claims of as much as $170 million, on a net basis after tapping its catastrophe reinsurance program, this will fall to around $70 million.

QBE said this morning that, “The Court ruled in favour of QBE with respect to two out of three of QBE’s notifiable disease policy wordings examined and in favour of insurers generally with respect to denial of access policy wordings. However, the Court ruled in favour of insureds with respect to one of QBE’s notifiable disease policy wordings and QBE is considering its options to appeal that decision.

“Based on the notified claims affected by the FCA test case and having regard to individual policy sub-limits, QBE’s estimate of its UK business interruption claims exposure is around $170M before allowing for recoveries under the Group’s catastrophe reinsurance protections.

“Consistent with the Group’s previous announcements, QBE believes that catastrophe reinsurance will limit the net cost of business interruption claims in our UK insurance business to $70M (which formed part of the $335M net cost of COVID-19 allowed for in our recently announced 1H20 result).”

Appeals are now likely and not every policy, even those covered by the wordings that were ruled against, will automatically pay out without further work and sometimes appeals being required.

But QBE is certain on the catastrophe reinsurance program support, as it said that while “the estimated gross cost to QBE could increase or decrease, however, the net cost to QBE is not expected to vary.”

Hiscox and RSA, two other insurers involved in the FCA’s business interruption insurance test case, said yesterday that they expect reinsurance support for their now increased expectations of UK BI claims.

There is a chance some of these UK BI claims impact certain ILS players that have supported the catastrophe reinsurance or other programs of these major insurers.