The insurer’s UK chief executive confirmed that its general insurance arm saw a £140m impact on earnings as a result of the coronavirus pandemic

Zurich UK’s chief executive Tulsi Naidu said the insurer is “playing [its] part in bringing certainty and clarity” to business interruption (BI) policy wordings by participating in the FCA’s test case, adding that the firm takes its “track record of claims payment seriously”.

Speaking to Insurance Times following the publication of Zurich’s 2020 H1 results this morning, Naidu added that the firm’s involvement in the regulator’s unprecedented legal action is “the right thing to do”.

She explained: “What the test case is doing is creating certainty and clarity for policyholders, which we think is the right thing to do.

“We’ve been asked to participate in order to provide the right representative wordings – there are 17 wordings that are being tested in the test case, [which] represents over 200 wordings in the market.

“So, what we’re doing is playing our part in bringing certainty and clarity for customers and we take claims payment seriously. We take our track record of claims payment seriously and so we think it’s the right thing to do to participate.”

Zurich is paying out on some of its coronavirus-related BI claims, although Naidu commented that is it “difficult to simplify” between the policy wordings that will or will not pay out.

“Essentially, we have policies where the policy terms provide coverage for business interruption as a result of Covid and we’re paying out on those swiftly and promptly,” she added.

Zurich will undoubtedly be watching and waiting for the High Court’s verdict, due in mid-September. In June, the insurer predicted that if the judges rule in favour of the FCA, this would result in approximately $200m of claims, net of reinsurance, in addition “to the scenario for full-year 2020 claims related to Covid-19 presented on May 14” – this estimation includes the potential impact on all Zurich’s UK business, not just its SME line.

‘Earnings impact’

It’s clear that the ongoing Covid-19 pandemic has created an “earnings impact” for H1, Naidu said.

“Clearly, there’s been an earnings impact because of Covid, but that’s us doing our job as an insurer,” she added.

For the first half of 2020, the earnings impact of Covid-19 claims within Zurich’s general insurance business amounted to £140m, across “personal travel, school trips, event cancellation, and, where policies respond to the pandemic, business interruption”.

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Including Zurich’s life portfolio, the total UK business’s operating loss identified £212m of Covid-19 related items. Naidu said this takes into account “Covid claims, market impacts, declines and fee income on businesses that weren’t able to operate during the pandemic. They include our community support contribution, so there are a variety of different impacts”.

Across GI and life, Zurich UK reported a £63m operating loss – Naidu points the finger firmly at Covid-19 for this figure. “The singular contribution to the operating loss is [the] £212m of Covid-related items,” she said. “Excluding the Covid-19-related items, we would have made a profit of £149m, across life and [GI].”

Mixed bag of claims

The pandemic has also created “a very unusual bag” in terms of claims trends, primarily due to the nation-wide lockdown; this led to “peculiar” claims trends for Q2.

Naidu explained: “It’s difficult to look at [claims trends within] the first half because particularly the second quarter was so impacted by Covid, the combination of some of the areas of disruption, so school journeys, travel, business interruption, etc, the frequency benefits in lines like motor, so it’s a very unusual bag for the quarter because of the nature of lockdown.

“I think as we come out, it’s a bit early to start to predict what the return to normal is and how we see some of those trends stabilising. I think some of the effects were clearly more one-off in nature – the nature of lockdown as well as the impact on things like the travel market means some of the effects on claims were quite peculiar to the quarter.

“If I strip that out, I think we’ll have seen some weather events, particularly in the first quarter. Large losses in property continue to be a feature. I think our underwriting focus has meant that we’re increasingly seeing improved loss ratio performance there, but there is still more to do.”

Strong growth

Despite the impact of Covid-19 on the firm’s financials, Zurich also reported an 11% improvement in gross written premium (GWP), from from £1,204m in 2019 to £1,339m for 2020’s H1. Naidu described this as the “strongest item” within the published results.

She said: “When we look at the last six months, recognising that Covid has been a really extraordinary event, if I look at the underlying performance of the business, the fact that we had an 11% GWP growth – it’s the strongest growth we have seen in a number of years, it’s a very strong growth number in absolute terms and relative terms, so we’re very pleased with that.

“Contributing to that growth is the very strong performance of our commercial business, which has traded very strongly through the pandemic and our SME, particularly the e-trade business, are both trading very, very strongly through the pandemic. And despite the disruption of the pandemic, we have seen positive momentum and new business.”

The uptick in e-trading is a positive signal of Zurich’s futureproofing for a post-pandemic world.

Naidu added: “What will be true for the medium-term is that there will be an acceleration of remote methods of interaction and e-trading and digital capability are essential to long-term success. The investments we’ve made there and the momentum we’re seeing positions us very well for the future.”