RSA & QBE say reinsurance to cover new BI claims after Court ruling

After Friday’s ruling from 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, insurance carriers RSA Group and QBE, have said that at least a portion of the increase in gross pandemic losses due to the ruling are likely to be dealt with by their reinsurance panels.

Friday’s Supreme Court decision has ramifications for a number of major insurance carriers, with estimates suggesting as much as £1 billion of additional business interruption claims could fall to exposed carriers’ property insurance books.

As a result, a proportion of that would be expected to be picked up by reinsurance carriers supporting the affected insurers.

RSA has again said it expects that support to be substantial, so that its net pandemic loss may not increase much at all.

Meanwhile Australian insurer QBE has also said today that its aggregate reinsurance will cover some of the claims it now expects after Friday’s ruling.

Late on Friday RSA said, “We are continuing to evaluate the court judgment, but do not currently expect the net loss estimates in relation to the policies before the Court to change materially from those previously reported.”

That’s no increase in net loss estimate, not gross and RSA added that, “Reinsurance protection is expected to apply.

Which suggests the insurer anticipates its reinsurance panel dealing with the majority of any increased level of business interruption claims from COVID-19 that flow to it, as a result of the court turning down the insurers appeals.

After the original High Court judgement went against insurers, RSA had estimated that the gross cost could be £104 million, which after catastrophe reinsurance would be reduced to around £85 million.

The insurer had also said that figure could reduce further as it expects the business interruption claims would qualify under its group-wide aggregate reinsurance programme.

In November, RSA had said that the retention under its aggregate reinsurance program had been exhausted, suggesting it would come into play for any further claims in the year.

At this stage it’s not possible to know how much more RSA can claim under its aggregate reinsurance, but it seems likely markets supporting that program will also face a share of these additional pandemic BI losses.

QBE meanwhile said this morning that its aggregate reinsurance program will protect it against some of the downside from Friday’s court ruling.

“The increase in gross UK insurance business interruption claims has the effect of utilising additional aggregate reinsurance limit thereby reducing downside protection with respect to potential Australian business interruption claims,” QBE explained.

Adding that, “To restore that downside protection and to add significant additional buffer, the FY20 result will now include an additional $185M risk margin strengthening with respect to potential Australian business interruption claims.”

Following this, QBE said it has “a modest amount of remaining aggregate protection” which it hopes, alongside its business interruption reserves already set, its substantial risk margins and the rest of its reinsurance program, will be enough to allow for “potentially severe Australian business interruption scenarios.”

As a result of this, QBE has now lifted its total ultimate COVID-19 allowance to $785 million.