US insurers and reinsurers writing business interruption cover could have their capital cut by as much as half if legislators impose policy changes on carriers that would see them forced to pay for two months of coronavirus-related claims, AM Best says.

Federal and state bills under consideration mainly focus on smaller businesses and would require coverage not intended when policies were underwritten and priced.

Chief rating officer Stefan Holzberg says the proposals would have a destructive impact on the industry’s financial strength and affect its ability to fulfil policyholders’ interests.

“In the long-term retroactive coverage could affect pricing, availability of insurance and confidence in underwriting,” he says.

AM Best calculates that the impact of the legislation would lead to business interruption losses of $US150-200 billion ($229-306 billion) per month for a two-month closure for enterprises with fewer than 100 employees, resulting in an insurers’ after-tax surplus cut of 37-50%.

The Insurance Information Institute last week welcomed a decision by the District of Columbia City Council to withdrawn legislation that would have forced insurers to pay pandemic-related claims, but matters remain under consideration in other jurisdictions.

Insurers in the US and the UK face potential business interruption class actions, with London-based legal firm Fieldfisher inviting those holding policies sold by Hiscox, QBE, RSA and others to sign-up for an action.

Britain’s Financial Conduct Authority has asked a number of insurers to outline their position on business interruption by Friday as it plans to seek a court declaration to provide greater clarity.