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Bermuda-based insurance company, Hiscox Limited is in the limelight for not paying business interruption claims with respect to the insurance policies directed to provide cover in the event of businesses being forced to shut down. Earlier in this month, the company clarified that its policy does not provide cover for business interruption in the course of ‘general measure’ adopted by the government in response to the coronavirus outbreak.
Hiscox issued business interruption cover under its core small commercial package policies offered to Small and Medium Enterprises (SMEs). The company estimated that around 10,000 policy holders have been directly affected due to the government imposed lockdown directed to contain the spread of coronavirus. But on being fired for not providing the claims on the outbreak of coronavirus and subsequent business closure, the insurer Hiscox stated that its policies did not cover protection from pandemic in its business interruption portfolio.
As per the media report, over a hundred of bars, pubs, and nightclub have stepped up to take legal action against Hiscox on account of non-payment of their business interruption insurance claims. The Night Time Industries Association’s (NTIA) Chief Executive Officer, Michael Kill, told media that the affected companies are being repudiated for their insurance claims. He further said that the insurance company has been disputing the claims on the basis of forced argument to avoid taking the financial burden during coronavirus crisis.
The NTIA action included two action group with around 200 more applicants seeking legal action against Hiscox. As per the media report, the chef Raymond Blanc has also hired lawyers after being denied of the insurance payment claim by Hiscox. In addition to this, one action group of NTIA is supported by the insurance broker advisory firm CEC that consist of over 30 business professionals including golf professionals, restaurants and gyms owners. Some of them claimed that the insurance company’s policies have evidently stated that it would provide claim amount if there would be any disruption to the business due to the restriction imposed by the government authority on a fallout of a notifiable human disease.
However, Hiscox acknowledged the disputed applications coming from policyholders and stated that it determined to provide greater certainty through closely working with the UK insurance industry, its regulators and its customers to identify the method of expediting resolution. The company expects that over 70 percent of 10,000 impacted customers have revenue of less than £40,000 per month in a normal trading environment and the level of economic loss is likely to be materially lower than reported revenues.
Hiscox Estimates $175 Million Net Claim Payments On Extended Lockdown
In the market release dated 22 April 2020, the company estimated a net claim of up to $150 million that it will be required to pay if the disruption caused by ban on travel and mass gatherings continues for a period of six month from March 2020, but if extended beyond six month, the company expects to bear an additional burden of $25 million. The company further believes that its exposure of business interruption to pandemic COVID-19 is limited in Europe region and negligible in the USA.
Similarly, insurer Beazley Plc has estimated pandemic-related claims at $170 million, in addition to the expected capital loss of $55 million in the first quarter driven by the historical crash in financial markets.
Different groups and advisory firms are coming together in a collaborative effort to take actions against the insurance companies which according to them have accepted insurance premium amount of tens of thousands of pounds but are now refuting the claims in the event of business interruption.
UK’s Insurance Companies Including Hiscox Limited Announced Dividend Cut Amid Novel Coronavirus Crisis
Many of the insurance company have axed dividend payment in line with Bank of England’s recommendation to cut dividend and bonuses and instead secure the funds for sustainability of the business during the time of ongoing crisis. It has been estimated that over pound 1 billion of dividend cut has been devised by the British insurers including RSA, Direct line, AVIA and Hiscox Limited, among others. The insurance companies explained that the move is to safeguard their business operations and lessen the impact of pandemic on the company and global economy.
In the announcement dated 8 April 2020, Hiscox Limited declared a suspension of 2019 final dividend of 29.6 cents per share. The company also revealed its decision to not conduct any share buyback or propose an interim dividend payment for 2020.
Overview of Hiscox Limited
Hiscox Limited (LON:HSX) is a LSE-listed global insurance group. The company’s strategy is to create a balance between low volatile local speciality business and catastrophe-exposed business so that there remains a plenty of prospect for profitable progress during the insurance cycle. As per the company information, it is an “A” rated company due to the strong financial performance and a balanced portfolio. The company has more than 3,100 employees throughout the 14 countries with operation in 35 offices. It is listed in London Stock Exchange and trade under FTSE 250 Index, FTSE 350 Index and FTSE All-Share Index etc.
HSX - Share Price Performance
On 24 April 2020, HSX stock price is down 0.61 percent or GBX 4.60, trading at GBX 745.40 as at 3:09 PM GMT. Hiscox’ stock price reached to GBX 1,028.5 level on 9 April 2020 reacting to its informed move of dividend cut announcement but then just after few days the stock price plunged to GBX 730.00 on 15 April 2020 on the company’s announcement of its business interruption exposure.
In last 52-weeks, the company’s stock recorded a highest price at GBX 1,795.0 on 05 July 2019, in contrast, the company also tumbled to the lowest price of GBX 654.0 in the last 52-weeks on 19 March 2020. While comparing the current stock price with a 52-week lowest price, it shows that the stock price has improved by 14.01 percent.
The market capitalisation of the company stands at GBP 2.16 billion as at 24 April 2020 while its beta is recorded at 0.81, showing lower volatility as compared to the benchmark index.
