Renaissance Re has announced an estimated $30 million pre-tax impact of the Ogden rate on its carried reserves, to be accounted for in the firm’s first quarter results.
The firm said most of the reserve increase is related to a its U.K. medical malpractice contracts within the reinsurer’s Casualty and Specialty segment.
One of the largest commercial lines underwriters in the U.S., W.R. Berkley Corporation, and Aspen Insurance Holdings previously announced the same estimated figure of an Ogden rate change impact of $30 million pre-tax in the shape of increased carried reserves for affected lines of business.
The Ogden rate – the rate used to calculate lump sum awards in U.K. bodily injury cases – was decreased by 325 basis points from 2.5% to minus 0.75% by the U.K. Ministry of Justice, effective from March 20th.
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.
However, 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 that re/insurers in the UK won’t see a long-term negative Ogden rate impact as the industry is expected to pass on costs to consumers while benefitting in the short-term from its reinsurance buffer.