Aviva slashes £385m off 2016 profit due to UK personal injury rate cut

Due to the decision of the Lord Chancellor to cut the personal injury discount rate, Aviva expects to take a charge to its 2016 IFRS profit after tax of approximately £385 million.

The charge represents the full impact of the personal injury rate move to minus 0.75 percent as at year end. The estimated impact on the group Solvency II capital ratio is approximately 2 percentage points.

The UK’s Lord Chancellor and Justice Secretary Elizabeth Truss has decided to change the Ogden discount rate to -0.75 percent from 2.5 percent. The so-called Ogden tables are used to calculate compensation awards for serious personal injuries.

Reflecting this charge as an exceptional item recognises the magnitude of the change in policy and the potential for future revisions to the discount rate to cause unnecessary volatility in Aviva’s results, the company said in a statement. Accordingly, it will not affect Aviva’s operating profit and there will be no change to its dividend policy.

At 30 June 2016, the Aviva’s Solvency II ratio was 174 percent, with a capital surplus of £9.5 billion. In 2015, operating profit before tax was £2.7 billion. Aviva will report its 2016 results on 9 March, 2017.

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