Hiscox predicts BI hit up to £250m

Bronek Masojada

Hiscox has predicted its exposure to business interruption claims from Covid-19 could range from £10m to £250m net of reinsurance.

The insurer revealed this in its latest trading update, which showed Hiscox UK grew its gross written premiums by 3% to $181.7m (2019: $178.9m) and faced a £10m hit from Storms Denis and Ciara in February.

The loss figures are based on a risk modelled scenarios on the impact of a 12-week lockdown, but Hiscox reiterated that Covid-19 was not a covered loss. The scenario took into account its view of the number of customers either ordered to close or with premises materially impacted. In addition, it accounted for savings likely to be made by customers on their normal business expenses, government relief available and adjusting for wider business trends from reduced economic activity.

The modelling was based on the facts 10% of Hiscox UK’s commercial customers purchase property insurance, which includes an element of business interruption. It placed a figure on this of 33,000 customers, of which it said 10,000 customers have been ordered to close as a result of the general national measures taken by the UK government, and the remaining three-quarters who purchase this cover are not premises dependent.

Hiscox is facing legal action from more than 500 business which believe the insurer should cover losses resulting from coronavirus disruption under their BI policies.

An analysts note from Jeffries analyst Philip Kett suggested a hit towards the upper end of Hiscox’s estimate would be a manageable outcome.

Kett said: “Though the range of outcomes (£10m-£250m) remains wide, we note that the upper end of this assumption at £250m is far less than some of the extreme outcomes investors feared post disclosure of the impacted policy count. This suggests a total underwriting cost of between $162m and $485m, or 37% to 110% of 2022F earnings, suggesting that the risk to capital is manageable.”

Hiscox has raised roughly £375m through sales of shares, having announced its intention to raise on Tuesday afternoon. The combination of new shares represent around 19.99% of the company’s existing issued share capital before the raise. 

The insurer said in its statement: “In view of the uncertain impact of Covid-19 on the global economy, we are unable to accurately forecast the outlook for 2020. As such, we have withdrawn all financial guidance for 2020 until there is more clarity. We remain confident in our ability to return to our normal 90% to 95% combined ratio target range for the retail business in 2022.”

CEO Bronek Masojada, pictured, said: ”In the first quarter, Hiscox has seen continued growth in our retail and London market divisions. Hiscox Re & ILS remained cautious.

“We are paying claims for event cancellation and abandonment, media and entertainment and travel which are covered by our policies and in the UK we welcome the positive steps by the Financial Conduct Authority to resolve disputes in the industry over the application of property policies relating to BI.

“We are announcing an equity placing today in order to respond to growth opportunities and rate improvement in the US wholesale and reinsurance markets. We have managed our investments prudently and our capital position is robust, with an estimated group regulatory solvency ratio at the end of March of 195%.”

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