Global credit assessor Fitch Ratings says court rulings on business interruption disputes could impact the credit quality of insurers in the UK non-life sector.
The firm said claimants may win in certain court actions if the relevant policy wording is “loose” – something those seeking to push lawsuits are betting on – exposing companies to unexpected losses.
It issued the updated guidance on ratings after conducting a stress test, in which the main stressor was the impact of potential liability exposure, particularly in relation to event cancellation and business interruption claims.
Fitch previously put both Beazley and Hiscox on Rating Watch Negative (RWN) – meaning they could potentially have their ratings downgraded – but both have since raised equity by releasing additional shares, and had their ratings affirmed as stable in response.
Fitch’s report said: “Subsequent to the initial rating actions, Hiscox and Beazley raised new capital of 20% and 15%, respectively, through the issuance of new ordinary shares.
“As a result, we revised the Outlooks back to Stable. Hiscox and Beazley remain exposed to potential coronavirus-related underwriting losses.
“In our view, both Hiscox and Beazley now have sufficient capital buffers to withstand a potential increase in pandemic-related claims”
Fitch added in its commentary on the report that it expects both business interruption and event cancellation claims caused by Covid-19 to impact underwriting in 2020, but will peak in 2021, especially where legal action is required.