Beazley (BEZ) has been forced to double its estimate for Covid-19-related first party business claims, in a painful knock to the specialist insurer’s recovery prospects.
Shares in the FTSE 250 constituent dropped as much as 15 per cent on Tuesday to 330p, just above the level at which the company raised £247m from shareholders in a placing and subscription in May.
At the time of that fundraising, the group believed the pandemic would lead to contingency, accident and health, marine, property and reinsurance claims of $170m (£133m). That initial assessment was in part based on the assumption that levels of contingency claims would have normalised by September, and that the large events and conferences Beazley specialises in would have resumed.
“As our book of business is heavily weighted to the US and UK, with the largest segment being conferences, our clients are still largely unable to operate as restrictions on holding events persist,” the group acknowledged. “However, that has now been revised to $340m net of reinsurance.”
Conferences that were postponed earlier in the year are being cancelled, compounding loss estimates. Beazley now thinks disruption is likely to continue into the second half of 2021, which analysts at broker Numis said “leaves diminishing scope for further deterioration”. Should this prove too optimistic, the insurer believes it would only be on the hook for a further $50m of claims.
There was better news for shareholders on a test case brought by the Financial Conduct Authority (FCA) over the wording of business interruption policies. Beazley does not expect the judgement – which generally found in favour of policyholders and ruled that insurers were wrong to reject Covid-19 claims related to business interruption – will have a material impact on its own business.
Despite that result, shares in several general insurers climbed on a judgement which is still likely to be manageable for the sector. RSA (RSA) said improved margins, immaterial changes in claims since the half-year, and strong Covid-19 reserves would "fully offset" the court judgment's impact on profits, while Hiscox (HSX) estimates that valid claims are now likely to be £150m below the upper end of its risk scenario.
Despite this, law firm Mischon de Reya – which acts for a group of policyholders of Hiscox – says it "actively considering” another group action on behalf of Covid-19-stricken business insurance customers, after the court found insurers who adopted ‘resilience’ policy wording used by the broker Marsh should pay out under the notifiable diseases and prevention of access (non-damage) clauses.
Mishcon lawyers said they plan to target 12 insurers who have used the wording, including RSA, Aviva (AV.), Allianz and AXA.
Shareholders in those general insurers were given another cause for concern this week, when the FCA said it would act to prevent the so-called “loyalty penalty” in home and car insurance, whereby long-term policyholders end up paying more than new customers. The watchdog said planned renewal restrictions would save households £3.7bn over the next decade.
