IAG will await the results of a legal test case before updating the market on possible business interruption claims losses, despite some investor concerns about the need for more immediate disclosure.

“We believe the intent to exclude pandemics is clear in our policies, however, until we see the outcome of the NSW Court of Appeal judgment, it serves little purpose to attempt to put a precise number on any potential liability,” a spokesman told insuranceNEWS.com.au.

“Once we receive a judgment outcome, we will update the market in an appropriate manner.”

The Australian newspaper reported that shareholder Ethical Partners Funds Management has raised the issue with the IAG board, suggesting the company should “better inform the market” rather than leaving a vacuum to be filled with broker and analyst speculation.

Investment director Nathan Parkin told insuranceNEWS.com.au that the company should be able to provide a broad range without waiting for the test case outcome.

“We don’t think it is unreasonable to have that view given the sophisticated business we are talking about,” he said.

Morgan Stanley in a research report last month said the market is “pricing in too much” for potential business interruption losses, with a derating of IAG’s stock price suggesting anticipated losses in the range of $1-2 billion.

The report says few claims have been lodged “for now” with brokers and IAG has a 32.5% quota share agreement that reduces the gross claims impact.

“As a cross-check, if we apply QBE’s UK experience, IAG could have $300 million to $1.2 billion of gross claims,” it says.

The NSW Court of Appeal heard the test case on October 2 and adjourned to consider its decision.

“If the insurers lose, we think they will likely appeal and many policies may need further conditions to make a BI claim,” Morgan Stanley says.

Morgan Stanley estimates IAG has 127,341 policies with elected business interruption cover, and if 1% of policies claim and the average loss was $50,000, this would translate to $30 million of net BI claims post-tax for the insurer.

The test case, brought by the Insurance Council of Australia, with support from the Australian Financial Complaints Authority, centres on whether disease exclusions referencing the Quarantine Act and subsequent amendments are valid for COVID-19 disruptions, given the law has been replaced by the Biosecurity Act.