UK deals blow to insurers with change to discount rate

Source: Business Insurance

Thomson Reuters July 15, 2019 (Reuters) — Britain will change the discount rate used to calculate compensation for personal injuries to minus 0.25% from minus 0.75%, disappointing insurers who were hoping for a higher rate to limit the money they must set aside to cover payouts. The decision by the ministry of justice follows a review in response to lobbying from motor insurers, whose profits were hit by the move to cut the so-called “Ogden Rate” from 2.5% in 2017. UBS analysts said insurers had been expecting a rate of around 0.5% and had moved to setting their reserves based on a rate of 0%. The lower rate chosen by the ministry means insurers will have to set aside more money than expected for lump sum payments for people seriously injured in car crashes, potentially denting their profits and pushing up drivers’ premiums.