The total cost of COVID-19 business interruption losses to UK commercial insurance companies following the recent Supreme Court ruling will not be clear at some point, with disputes between primary carriers and reinsurance companies on the cards, according to A.M. Top. Inc.
The rating agency said that most insurers affected by the decision, who were in favor of policyholders, are expected to increase their COVID-19 estimates of business interruptions and have mainly assumed reinsurance recovery. But it warned that "any disputes with reinsurance companies looms."
A.M. Best said the level of reinsurance recovery from COVID-19 business interruption requirements depends on the structure of reinsurance programs and contract formulations. In particular, the aggregation of COVID-1
However, it is said that as losses increase, reinsurers "are likely to bear a higher proportion of claims due to companies exceeding their retentions." claim that they trigger insurance payments with a surplus.
Reinsurance companies are likely to contest cedants claiming a single event and will claim that claims were caused by separate events and companies were suspended by various restrictions, Fitch said. Disputes can follow, it added.
A.M. Best said that the level of reserve reinforcement following the ruling of the British Supreme Court is not expected to have any significant impact on insurers' capital or profits. have sufficient capacity from existing reserves for incurred but unreported COVID-19 claims to handle additional or late claims before the UK Supreme Court. Most notably, commercial insurance companies will need to build bridges with customers, especially SMEs, following disputes over COVID-19 claims this year. The agency said that transparency must be improved and that business interruption agreements should be clearer as to what is covered.
The majority of COVID-19 exposures should have expired in March 2021, which will mark one year since the UK's first lockdown. said AM Best.
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