XL assesses UK impact of Ogden rate change

02-03-2017

XL Group has said that it expects the UK’s Ogden rate change decision to cost it around $75 million.

On February 27 Justice Secretary Elizabeth Truss and the UK’s Lord Chancellor decided to change the Ogden discount rate from 2.5 percent to -0.75 percent. The so-called Ogden tables are used to calculate compensation awards for serious personal injuries. The change exceeded the level expected by the industry.

Consequently XL now estimates that the pre-tax impact of the rate change on the company’s carried reserves for relevant lines of business could be $75 million, adding that it will be recognised in the first quarter of 2017. The charge is primarily related to XL’s UK motor business in the reinsurance segment.

Classes of business impacted by this rate change include UK motor bodily injury, UK employer’s liability, and UK public liability. The impact on the insurance segment is expected to be modest due to the low level of UK bodily injury claims in the company’s portfolio as well as reinsurance protections.

XL has not been a large writer of UK motor business, but has some exposure from business written on a non-proportional reinsurance basis. This portfolio was scaled back beginning in 2009 as periodical payment orders, or PPOs, became more prevalent and more costly. For the year ended December 31, 2016, XL’s gross UK motor premiums were under $10 million.

XL Group, Ogden, Motor Insurance, Motor Reinsurance, Bermuda, UK

Bermuda Re