Reinsurance News

Full impact of Ogden Rate on reinsurance pricing still to be seen: A.M. Best

5th June 2017 - Author: Steve Evans

The total impact to reinsurance pricing from the increase of the UK’s Ogden Rate, or the personal injury discount rate, has yet to be seen, with further reinsurance price rises expected at future renewals.

Catherine Thomas, senior director at A.M. Best, said; “Companies have been affected to different degrees by the change to the discount rate. However, for A.M. Best-rated entities, no actions have been taken on insurers or reinsurers as a direct result. Most rated companies are not purely U.K. personal lines insurers but are relatively well diversified, and are able to absorb the reserve strengthening within large and varied portfolios.”

For motor insurers based or operating in the UK the ability to absorb the immediate impact of the Ogden Rate hit comes down largely to their reinsurance arrangements.

This varies considerably across the market, according to A.M. Best, and the level of diversification in portfolios also adds a factor that softens the impact for the more multi-line players.

The rating agency said that there was anecdotal evidence of sizable reinsurance rate increases at the April 1st renewal, but it believes that there will be more to come as the impact of rate changes will likely be staggered over the coming months.

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Significant rate increases are expected from reinsurers underwriting excess of loss policies. But, as much of the UK motor insurance market renews its reinsurance at January 1st, the full impact of reinsurance rate increases remains to be seen and may only become clear at 1/1 2018.

Insurers continue to face uncertainties, as the UK government undertakes a consultation into how to set the discount rate going forwards, which will make it difficult to forecast the ultimate level of claims payable going forward.

For companies that utilise a lot of motor reinsurance, A.M. Best warns; “Heavily reinsured companies could be vulnerable to substantial increases in excess of loss rates.”

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