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Law360, London (April 1, 2021, 3:17 PM BST) -- Insurers on the London market have been rocked by losses linked to the coronavirus pandemic in the last year, but there are signs that the worst has passed for the sector, according to a Fitch Ratings report.
The ratings agency said Wednesday that many insurers have already made "policy language adjustments," which had introduced exclusions for claims arising from COVID-19.
Fitch said that insurers in London had been hit hard by claims for event cancellation and business interruption. The London market is made up of insurers in the City — the capital's financial district — including those at Lloyd's of London, which primarily write commercial insurance.
The Financial Conduct Authority brought a test case at the High Court against eight insurers last year on business interruption insurance. The U.K. Supreme Court ruled in January that most companies with so called non-damage extensions to business interruption policies could claim from losses incurred during the government lockdown.
"Fitch Ratings expects pandemic-related losses to reduce in 2021, given the conclusion of the FCA test case and a smaller exposure to [business interruption] and event-cancellation claims through policy language adjustments," the ratings agency said. "However, the impact of pandemic on third-party claims is still unknown."
Fitch did not immediately respond for clarification on what types of third-party claims could arise.
Typically, third-party claims could include cases in which an employee sues his company for failing to take proper precautions to prevent the spread of COVID-19 in the workplace. Depending on policy wordings, those claims could be covered by a company's insurance for errors and omissions.
"We expect these claims to start developing in 2021 and 2022, and these could negatively affect the profitability of the market, but these claims are slow to materialize and even slower to settle," Fitch added.
The report comes after Lloyd's of London said its members would pay out £6.2 billion ($8.5 billion) in claims linked to COVID-19.
Hiscox, one of the eight defendants in the FCA test case, said this month that COVID-19 claims had pushed it to a $268.5 million loss last year, down from a profit of $53.1 million in 2019.
--Editing by Ed Harris.
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