Hiscox revised its reserving upwards alongside taking into account potential business interruption payouts; the insurer believes its exposure to Covid-related BI claims could be between £10m and £250m
Hiscox has reserved $232m (£174m) for Covid-19 claims, an increase on the amount previously announced earlier this year, as it battles policyholders in the FCA’s test case.
The insurer had initially set aside $150m for classes including event cancellation and abandonment, media and entertainment and travel, but announced the reserving increase within it’s half-year results, published on Monday 3 August.
Consequently, the group’s combined operating ratio rose to 114.6% for the first half of the year, compared with 98.8% this time last year.
The business was $138.9m in the red for H1, compared with a profit of $168m for H1 2019.
Gross written premium (GWP) was slightly down at $2.23bn, which the company said was a result of its ”diversified strategy” enabling it to grow its Hiscox Retail and Hiscox London Market lines ”while remaining disciplined in Hiscox Re & ILS”.
Commenting on the results, chief executive Bronek Masojada said: “The dedication of our people around the world has enabled the business to respond to the challenges of this global pandemic and to deliver a resilient performance.
”Our long-held strategy of balancing volatile big-ticket risks with our more steady retail earnings in the US, UK and Europe provides both stability and opportunity.
”We are well positioned to capture the opportunities ahead in all our markets and in all our segments around the world.”
The group added that the Covid-19 pandemic had shown it that ”the future of insurance is digital, not only in how we run our business, but how we reach our customers.”
”The magnitude of what many in the industry suggest may be the largest insured loss in history is gradually becoming apparent, and as a result we expect a continued contraction of risk appetites along the entire (re)insurance chain”, it said.
”As we approach the wind season, we are strongly capitalised, diversified and well positioned to capture opportunities in all of our markets.”
Test case exposure
Hiscox is embroiled in a legal fight with the FCA and its own policyholders who were denied business interruption (BI) cover during the Covid-19 pandemic. The case concluded last week with the outcome expected in mid-September.
Despite the FCA’s assertions to the contrary, Hiscox maintained within its H1 report that its “standard UK property policies do not provide cover for business interruption as a result of the general measures taken by the UK government in response to a pandemic”.
Hiscox chairman Robert Childs acknowledged that this stance “has been disputed by some policyholders”, referencing the Hiscox Action Group (HAG) – a group of around 600 policyholders who have had their business interruption claims rejected by the firm.
HAG has also been represented within the FCA’s test case over the last two weeks, presenting its case against Hiscox’s policy wordings.
Childs added, however, that “significant uncertainties around the final judgment exist” but that “when the process is complete, including any appeals, we will of course abide by the final outcome”. He additionally noted that although the test case will clarify the triggers for and scope of BI cover, it “won’t address issues of quantum and the adjustment of individual claims”.
Hiscox’s modelled exposure to BI claims linked to Covid-19 is between £10m and £250m, said Childs, net of reinsurance. This “takes into account our view of the number of customers either ordered to close or with premises materially impacted, savings likely to be made by customers on their normal business expenses and various forms of government relief available to businesses, adjusting for wider business trends resulting from reduced economic activity”. The insurer also considered the impact of different closure periods of affected businesses within its analysis.
Aside from the potential for BI claim payouts, Hiscox added that the FCA’s test case may also affect its reinsurance portfolio written by Hiscox Re and ILS as “some of its clients are primary insurers operating in the UK market, which may be impacted by this judgment” – Childs said that the insurer cannot “accurately estimate the quantum of any potential liabilities” at the moment.
Childs emphasised that the insurance sector cannot underwrite pandemic risks alone.
He said: “Pandemic is not the first systemic risk that has faced the insurance industry; however it is one that the industry cannot underwrite on its own.
“Protection gap schemes already exist for other systemic risks such as flood and terrorism that would otherwise be uninsurable and Hiscox will continue to support industry efforts to develop effective solutions in all our markets, such as those recently proposed by Lloyd’s of London.”