(Alliance News) - The UK's financial services regulator on Tuesday said a court has ruled in favour of policyholders in a business interruption claims test case against insurers.
London-listed insurers Hiscox Ltd and RSA Insurance Group PLC, two of the eight firms that were defendants in the case, said the ruling will result in a financial hit of around GBP100 million. The duo also briefly updated the market on their third quarter trading, which to date has been promising.
Hiscox shares surged 20% to 914.40 pence each in London on Tuesday. RSA was up 4.4% at 490.50p.
The Financial Conduct Authority said it brought the test case to court in a bid to "resolve the lack of clarity and certainty" for policyholders aiming to make business interruption claims as a result of the Covid-19 pandemic.
"We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues. Today's judgment is a significant step in resolving the uncertainty being faced by policyholders," FCA Interim Chief Executive Christoper Woolard said.
"We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties. Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat."
The FCA noted that before the court ruling, some insurance policies with business interruption clauses are focused on property damage. The watchdog also noted that other policies also include a notifiable diseases clause.
While some insurers accepted liability under these policies, other insurance providers have disputed whether they need to, the FCA noted.
In response to the ruling, Hiscox said additional Covid-19 related claims for business interruption will be less than GBP100 million, net of reinsurance. Though the company noted that is a reduction from GBP150 million, the upper end of a previous risk scenario.
"All parties involved now have an opportunity to apply to the court for permission to appeal some or all of the judgment to a higher court. The parties may also ask that any appeal proceed directly to the Supreme Court, rather than to the Court of Appeal first, in order to expedite the appeal process. It is expected that a ruling on any such application would be made in October. The outcome of any appeal could impact loss estimates," Hiscox said.
RSA said the additional financial impact from the ruling will be GBP104 million, though this nudges down to GBP85 million after catastrophe reinsurance protection is applied.
RSA added its third quarter trading to date has "been strong" and it now plans to resume dividend payments. It will release its delayed interim dividend of 8 pence per share, a 6.7% rise from last year's 7.5p first half payout.
Hiscox also reported promising third quarter trading so far.
"In July and August, the group grew its gross written premiums by 19% compared to the same period last year. Over this period Hiscox Retail achieved growth in both revenues and customer numbers, with premiums up 7%, including 6% for Hiscox UK," the company explained.
By Eric Cunha; ericcunha@alliancenews.com
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