6 March 2017Insurance

Axis Capital expects $50m charge from Ogden rate slash

AXIS Capital Holdings has predicted the impact of the recent Ogden rate change, which impacts the way insurers calculate future losses in personal injury cases in the UK, on its business, expecting it to be around $50 million.

The UK’s Lord Chancellor and Justice Secretary Elizabeth Truss has  decided on February 27 to change the Ogden discount rate to -0.75 percent from 2.5 percent.

The company said that the pre-tax impact on the carried reserves for relevant lines of business could be approximately $50 million, to be recognised in the first quarter of 2017. This relates primarily to AXIS Capital’s UK motor non-proportional business in its reinsurance segment.

The main classes of business in the UK expected to be impacted by this rate change are motor bodily injury, employers’ liability and public liability.

The company added that its carried motor reinsurance reserves as at December 31, 2016 reflected a range of risks that may or may not materialise, including a potential reduction in the Ogden rate.

However, the company pointed out that actual rate change was higher than scenarios considered most likely, none of which included negative rate scenarios. This increase to carried motor reserves adjusts for this higher reduction in the Ogden rate which has materialised.

UK motor non-proportional reinsurance business represents approximately 1 percent of AXIS Capital’s net premiums written. For the year ended December 31, 2016, AXIS’s UK motor non-proportional reinsurance premiums were approximately $40 million.

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More on this story

20 February 2017   A planned revision of the Ogden discount rate from 2.5 percent to negative 0.5 percent would particularly affect UK motor reinsurers as they would likely experience a material one-off reserve charge of approximately £4.9 billion, according to analysis by Willis Towers Watson.
13 February 2017   A likely reduction in the UK's Ogden discount rate in February 2017 would result in higher costs for claims settled as a lump sum, Fitch Ratings said.
20 March 2017   US property/casualty insurer Travelers has estimated the impact of UK’s personal injury Ogden discount rate at $62 million.