AIG estimates $100m Ogden charge in Q1 results
American International Group (AIG) has said it anticipates that the recent decision by the UK Ministry of Justice to reduce the discount rate applied to lump-sum bodily injury payouts, known as the Ogden rate, will cost it some $100 million in its first quarter of 2017.
In a statement announcing two items it expects to impact its first quarter results, the company said that it expects to record an increase to prior year loss reserves of approximately $100 million in its first quarter of 2017 results due to the Ogden rate cut.
The discount rate change primarily impacts the liability and financial lines business within commercial insurance in the UK. It said that its carried reserves as at December 31, 2016 were estimated using an assumption that the Ogden rate would decline to 1.0 percent, however, the UK Ministry of Justice recently reduced it to -0.75 percent.
The company also noted that the adverse development cover entered into with Berkshire Hathaway with result in a $40 million pre-tax gain based on the closing date of the contract of February 3, 2017.
The total gain over the life of the deal is anticipated to be of $2.6 billion. AIG said that it will star amortising the deferred gain over the expected reinsurance recovery period, beginning in the first quarter of 2017. The amortisation of the amount will be included in pre-tax operating income for the liability and financial lines business each quarter.
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