The UK’s Financial Conduct Authority (FCA) and a number of UK property insurers remain locked in negotiations which – if successful – could prevent an appeal to the Supreme Court following the groundbreaking Covid-19 test case judgement earlier this month.


This morning (29 September), the FCA and a number of the UK insurers involved in the case confirmed they have lodged precautionary appeal notifications ahead of yesterday’s deadline as discussions between the parties continue.

The ReInsurer understands that the insurers – in tandem with their reinsurers – are attempting to gain clarity on a number of issues that emerged from the test case, specifically around areas such as the application of trends clauses and BI loss measurement issues generally.

In a statement this morning (29 September), the regulator said: “Positive discussions continue with all parties”.

While Hiscox – one of the leading insurers involved in the test case – said: “In order to preserve the ability of any appeal to proceed straight to the Supreme Court, Hiscox, together with certain other insurers and the FCA, has taken the necessary procedural step of applying to the High Court for a leapfrog certificate before yesterday’s statutory deadline for doing so had passed.

“However, Hiscox has not yet made a decision on whether it will seek to appeal.”

RSA also said in a statement this morning that it had “followed the necessary procedure to seek permission to appeal the court’s findings in the FCA’s recent business interruption test case at the Supreme Court”.

It added: “RSA understands that the FCA and other insurers who were party to the court case have also filed similar applications, the deadline for which expired yesterday. A court hearing in relation to these applications will take place on 2 October.”

According to sources, reinsurers are also closely monitoring the discussions as claims have been made on a number of programs, including RSA and Hiscox.

Following the test case decision – which broadly went in favour of policyholders – carriers were able to gain greater clarity on their gross and net exposures.

Indeed, Hiscox’s share price leapt as it confirmed its net losses would be capped at £100mn (worst case £250mn) while RSA said its discussions with its lead reinsurers were “positive”, with both sides agreed that their group aggregate reinsurance programme will be triggered.

RSA’s H1 estimate for Covid-19 claims was £57mn and, following the ruling, its estimate increased to £104mn gross. But once the group’s catastrophe cover kicks in, this should limit claims to £75mn, although RSA allowed for an additional £10mn of leakage.

RSA upgraded despite continuing appeal uncertainty

Despite the ongoing prospect of an appeal, analysts have continued to respond positively to the FCA decision as giving clarity to UK insurers’ Covid-19 BI exposures.

In a note titled “Time to Break Free” and published this morning (29 September), Jefferies International analyst Philip Kett lifted his price target on RSA to 600p (vs opening 460p), commenting: “With the key headwinds (FCA test case and lack of dividends) now resolved, we believe that RSA’s shares have been materially de-risked”.

RSA YTD share price

He argued that while the prospect of the appeal had not rescinded while talks are ongoing between insurers and the FCA, he added: “it’s our view that the initial ruling is unlikely to be altered, especially as almost all stakeholders appeared to declare victory in the immediate aftermath”

He continued: “For [RSA] shareholders, we believe that a lower risk premium is warranted, justifying the re-rating”.

Jefferies made similar comments on Hiscox, whose share price climbed 17 percent immediately following the mid-September High Court judgement.

In a 162-page judgment on 15 September, Mr Justice Butcher and Lord Justice Flaux ruled in favour of policyholders in the majority of the 21 policy wordings that have come under scrutiny in a test case brought by the FCA in July.

In doing so, it also tilted English insurance law more in favour of the insured after a number of recent BI decisions over both causation and quantum which have been regarded as pro-industry in their impact.

The judgment said most, but not all, of the disease clauses in the sample policies provide cover. This included certain denial of access clauses dependent on the detailed wording of the clause and how the business was affected by the government response to the pandemic, such as whether the business was forced to close completely or was allowed to operate in a reduced way.

UK commercial insurers participating in the High Court test case...

The ruling also clarified that the Covid-19 pandemic and the government response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover.

The Court held, across all policies, that on the key causation argument run by the insurer defendants in assessing how a counterfactual, “but for” test or “business trends” clause should be applied, one starts with the insured peril itself.

The eight insurers relied heavily upon the decision in Orient Express Hotels Ltd v Assicurazioni Generali to support their case on causation and the trends clauses.

The Court dismissed the insurers’ arguments and distinguished Orient Express on the basis that it was “simply not concerned with the type of insured peril” being considered in the case.

In particular, the Court ruled that the “composite or compound perils” featuring in the wordings before the Court, contrasted with the “all risks” nature of the cover in Orient Express.

The Court did not make any findings of fact as to where Covid-19 has occurred or manifested. Whether the insured can discharge the burden of proving that the disease occurred or manifested in a certain area will need to be determined on a case by case basis, it added.