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$30 million blow to W.R. Berkley results after Ogden rate change

29th March 2017 - Author: Staff Writer

One of the largest commercial lines underwriters in the U.S., W.R. Berkley Corporation, has revealed an expected $30 million pre-tax and $22 million net blow to the firm’s first quarter operating results after the Ogden rate cut.

The firm said its recording the impact as an increase to prior year loss reserves, mostly in its reinsurance segments.

Re/insurer’s in commercial lines in the U.K. are facing losses after the U.K. Ministry of Justice announced a reduction to the rate in early March, from +2.5% to -0.75%.

Earlier this month, re/insurers Markel and Novae announced a blow to 2016 profits and changes to reserve level strategies after being hit by the dramatic Ogden rate decrease.

Markel reported expecting to increase prior year loss reserves for its UK motor exposures run-off to $85 million on a pre-tax basis.

And Novae’s Chief Executive Officer (CEO), Matthew Fosh, said the rate decrease smashed 2016 profits with a heavy reduction of nearly 60%.

The rate decrease means UK re/insurers are seeing a temporary blow to profits as they prepare to be hit with higher claims costs; these firms could turn increasingly towards reinsurance protection as they renegotiate reserve levels to address the Ogden rate decrease.

Industry experts have warned profitability may be affected for several years as insurers build on depleted reserve buffers and UK motor insurers appear set to face increased reinsurance costs.

Analysts have predicted the market will respond by imposing premium rate hikes and higher deductibles across the segment affecting both personal and commercial policies, but experts have generally agreed in forecasting that, in the long-term, re/insurers in the UK won’t be negatively impacted by the negative Ogden rate as the industry is expected to pass on costs to consumers while benefitting in the short-term from its reinsurance buffer.

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