UPDATE 2-Hiscox agrees deal with UK policyholders over COVID-19 losses

* Policyholder group also took part in watchdog test case

* Hiscox shares up 2% at two-month high

* Hiscox has accepted more than 8,000 claims - FCA data (Adds Hiscox Action Group statement, detail, shares, comment)

LONDON, June 28 (Reuters) - Hiscox has agreed an arbitration settlement with a group of policyholders over business interruption losses due to the British government’s COVID-19 lockdown last year, the Lloyd’s of London insurer said on Monday.

Hiscox was one of six of the world’s largest commercial insurers to lose a test case in Britain brought on behalf of policymakers by the Financial Conduct Authority.

Britain’s highest court said policyholders had a right to payouts from insurers who had argued many business interruption policies did not cover widespread disruption after government efforts to curb the virus from last March.

The judgment did not detail the size of the payments which insurers needed to make.

Hiscox said in a statement its settlement with the Hiscox Action Group of policyholders was “in line with the Supreme Court Judgment and the proceedings have now been resolved to the mutual satisfaction of all parties”.

The terms of the settlement were confidential, it added.

The Hiscox Action Group, which also took part in the test case, issued an identical statement.

Hiscox said in March it had reserved $475 million overall for pandemic-related claims and that the insurer had suffered “brand damage” after the high-profile court case.

Its shares rose 2% to a two-month high, outperforming the FTSE mid-cap index.

The judgment affects dozens of insurers with similar policy wordings.

The FCA said earlier this month that 757 million pounds ($1.05 billion) in interim or final payments had been made by insurers to policyholders so far.

Hiscox has accepted nearly 8,000 claims for business interruption payments, the most among around 50 insurers which have accepted claims, according to FCA data.

The insurer had made interim or final payments on more than 2,000 claims as of May 31, the FCA data showed.

Josianne El Antoury, an associate at law firm Covington, said there was likely to be more litigation in Britain around business interruption payments, on issues not directly addressed by the judgment.

“The FCA test case has been great in terms of providing guidance, but it isn’t the be-all and end-all,” she said.

$1 = 0.7194 pounds Reporting by Carolyn Cohn Editing by Iain Withers and Mark Potter