S&P Sees Low EMEA Risk From Retroactive Biz Interruption

By Martin Croucher
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Law360, London (May 18, 2020, 5:21 PM BST) -- Insurance regulators in the European, Middle East and Africa region are unlikely to force amendments to business interruption policies so that they retroactively cover pandemic-related losses from the period of lockdown, ratings agency Standard & Poor's said Monday.

S&P said in a report the biggest hit that insurers within the region would face would likely come from investment losses, rather than claims.

"Pandemics are excluded from most business interruption insurance contracts, and in EMEA, we see limited risk that authorities will make retroactive legal changes to these agreements," the agency said.

"That said, in less clear-cut cases, or where policy wording is less definitive, we could see regulatory or legal pressure to pay claims, which could increase capital pressure on individual insurers," it added.

The insurance industry has been rattled in recent weeks by several U.S. states proposing laws that would force insurers into covering business losses from the lockdown, even if the policies contained exclusions over pandemic-related losses.

The U.S. Treasury Department wrote to members of Congress to warn the proposals "fundamentally conflict with the contractual nature of insurance obligations and could introduce stability risks to the industry," according to a letter published last week by the Insurance Information Institute.

In Europe, regulators have been quick to dismiss the viability of similar laws. The European Insurance and Occupational Pensions Authority said on April 1 that "imposing retroactive coverage of claims not envisaged within contracts could create material solvency risks and ultimately threaten policyholder protection."

Similarly, the U.K.'s Financial Conduct Authority said it sees no reasonable grounds to intervene when a policyholder clearly didn't have the required cover in place, although later it said it would take a representative sample of disputed policy wordings to the High Court to get a legally binding ruling.

Lloyd's last week said it predicts a $203 billion hit to the global insurance industry over COVID-19, comprising an underwriting loss of $107 billion and an additional $96 billion in investment losses.

--Editing by Rebecca Flanagan.

For a reprint of this article, please contact reprints@law360.com.

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