AXIS Capital Holdings has predicted that it could be hit with a bill of up to $50 million from the recent decision to slash the Ogden rate by more than was anticipated.
The Ogden Rate is the discount rate used to calculate lump sum awards in UK bodily injury cases. At the end of February the UK Ministry of Justice announced that it was reducing the rate – but more sharply than had been predicted by the insurance market.
AXIS Capital has now estimated that the pre-tax impact of the Ogden rate change on the company’s carried reserves for relevant lines of business could be approximately $50 million, to be recognised in the first quarter of 2017.
According to the company 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.
Axis 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.
Axis Capital, Ogden Rate, Motor insurance, Bermuda, UK