istock-656200656
iStock/ StevanZZ
16 July 2019Insurance

Ogden discount rate ‘just a bump in the road’ for motor insurers, says S&P

S&P Global Ratings said the less generous than expected minus 0.25 percent Ogden discount rate announced yesterday is ‘just a bump in the road’ for UK motor insurers.

The ratings agency said that while the change from minus 0.75 percent to minus 0.25 percent had been a ”slight surprise” for the market, which had been predicting a rate of somewhere between zero and 1 percent, it will only be “a minor earnings event for the market”.

Citing data from the Institute and Faculty of Actuaries, S&P said most insurers (77 percent) had been reserving on the basis of a discount rate somewhere in the region of zero to 0.5 percent, while the majority of the larger or listed firms that shared their reserving tactics went for zero.

Insurers will have to strengthen reserves as a result of this but the new discount rate is likely to add only a point or two to the sector's combined ratio in 2019. However, the agency added, there could be “second-order effects”.

“We believe pricing will be adjusted upward, although the competitive nature of the UK motor market will limit this effect. We may also see stiffer reinsurance pricing at the 2020 renewals for UK motor insurance providers. On the upside, the lower discount rate is likely to encourage more claimants to settle as a lump sum (the lower the discount rate the larger the lump sum settlement) rather than as a periodic payment order (PPO--where the claimant receives an annuity payment along with a lump sum)--a benefit for motor insurers looking to limit longevity risk.”

The Ogden discount rate is used to calculate the compensation due to a personal injury claimant in England and Wales, assuming the lump sum paid will be invested, the discount represents the amount that would be earned on the money in interest.

Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

More of today's news

International Re launches first re/insurance solution for mid-sized captives
The company claims to offer a "market changing product" that has traditionally been available only for large captives.

Hudson Structured leads Series B funding round for QBE-backed insurtech
RiskGenius has expanded its partnerships with three global insurers - Everest, FM Global and Liberty Mutual.

Munich Re reveals leadership transition in Korea
The reinsurer has hired the chief financial officer of Chubb Life Korea Insurance.

AssuredPartners snaps up broker Hettle Andrews for UK expansion
The acquisition is a part of AssuredPartners' strategy to expand its presence in the UK regional retail broker market.

Fidelis Group names senior claims manager
The executive will provide additional leadership to FCS and will be based in Louisiana.

Save £600 with the Intelligent InsurTECH Europe Super Early-Bird rate:  Book now

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk


More on this story

Insurance
15 July 2019   UK insurers will be “hugely disappointed” as the injury damages rate, the Ogden discount rate, was set at minus 0.25 percent today to come into force on August 5, 2019.
Insurance
15 July 2019   Moody’s Investors Service has warned that the Ogden discount rate of minus 0.25 percent, revealed today by the UK’s Lord Chancellor, will mean a “one-off hit to earnings” for reinsurers that have been working to expectations of a new rate between zero and 1 percent.
Insurance
19 July 2019   A government Impact Assessment (IA) of changes to the UK’s personal injury discount rate, also known as the Ogden rate, has been described as “misleading and wholly disingenuous” by the Association of British Insurers (ABI).