US insurer WR
Berkley is the latest firm to report estimated losses due to the adjustment of the UK Ogden rate, which took effect on March 20.
The company anticipates a $30 million pre-tax increase to prior year losses, while adjusted losses are expected to amount to $22 million after tax.
These adjustments are the result of the change in the Ogden rate, which is set by the UK Ministry of Justice. It was last adjusted in 2001 but Lord Chancellor Elizabeth Truss announced that the rate was moving from 2.5% to -0.75% to reflect current market conditions in late February.
Trade publication
Intelligent Insurer reported that other firms have announced anticipated changes in their first quarter 2017 results, including Axis Capital, property/casualty insurer
Travelers, the XL Group and Aviva, which took a $385 million hit to its post-tax profits for 2016.
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The Ogden rate is the rate used to compute for the interest adjustment on lump sum payouts to victims of life changing injuries. The percentage is prescribed by UK law and linked to returns on the lowest risk investments, typically under the Index Linked Gilts.
Under the law, claimants are treated as “risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life,” the UK government said on its website.
Also, a statement posted on the website said that the rate change was made with a pledge to “launch a consultation…to consider whether there is a better or fairer framework for claimants and defendants…”
Additionally it said that “Chancellor of the Exchequer Philip Hammond will meet with representatives of the insurance industry to assess the impact of the rate adjustment.”
The consultation will be launched before Easter and “will consider options for reform—including whether the rate should in future be set by an independent body; whether more frequent reviews would improve predictability and certainty for all parties; and whether the methodology is appropriate for the future.”
Meanwhile, UK general insurance leader at consulting firm PwC Mohammad Khan said in a statement last month that “the announcement will also impact reinsurance pricing by pushing prices up for motor and liability reinsurance cover. This may impact the business models of companies that rely on low layers of reinsurance who will be faced with much higher costs of business after they renew their reinsurance.”
He added: “In any case, due to the competitive nature of the insurance industry, policy holders should be able to reduce any impact by shopping around…” but that “significant price increases” will nevertheless be observed.
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