Australia’s general insurance industry is still on track to achieve “a good, solid return” despite losing the business interruption (BI) test case heard last month in the NSW Court of Appeal, S&P Global Ratings says.

Credit Analyst Craig Bennett told insuranceNEWS.com.au that “it’s still early days in relation to the business interruption [case] and how particular policies will respond.”

As first reported by insuranceNEWS.com.au last Wednesday, the NSW Court of Appeal ruled outdated pandemic exclusions wordings that referenced the repealed Quarantine Act 1908 did not apply, putting insurers potentially in line for COVID-19 BI payouts.

The Insurance Council of Australia (ICA) initiated the test case in consultation with the Australian Financial Complaints Authority (AFCA).

S&P says the additional claims cost as a result of the test case ruling “will vary by insurer and depend on specific policy cover”.

“Payouts may also be subject to further legal avenues,” the ratings agency says. “Our expectation is that while there will be a hit to current year earnings, the impact on ratings is negated by conservative reserving, reinsurance protection, and maintenance of robust capital buffers.

“Australian property and casualty insurers’ potential payouts for business interruption claims… will be manageable.”

In a report released before the BI ruling, S&P predicted the industry is on track to perform solidly despite the economic fallout of the pandemic and other pressing challenges.

“The underwriting earnings will be sound,” Mr Bennett told insuranceNEWS.com.au. “We expect the industry as a whole to be able to provide a good, solid return to their investors in terms of the equity side.”

Mr Bennett says his views remain unchanged after the court ruling.