According to rating agency A.M. Best, revisions to the reform of the law governing the personal injury discount rate, or Ogden Rate as it is known, in England and Wales are likely to result in more stable motor reinsurance renewal pricing in January.
It had been expected that January 2018 renewals of motor excess of loss reinsurance programmes would experience steep price increases, as the impact of the first reform of the Ogden Rate flowed through.
Following the UK Government’s 7th September 2017 draft legislation proposing a reform to the reform of the Ogden Rate, the expectation is that the discount rate will be increased in 2018 allowing re/insurers to at least partially reverse recent reserve strengthening actions.
Catherine Thomas, senior director at A.M. Best, explained; “The changes proposed in September’s draft legislation mean that in future, the discount rate will be set by reference to expected rates of return on a ‘low risk’ diversified portfolio of investments rather than ‘very low risk’ investments as is assumed in the current minus 0.75% rate. It is expected that the rate will be reviewed shortly after the legislation comes into force, and, thereafter, at least every three years.”
As a result, the rating agency expects that price increases seen in motor insurance policies would stall, which also suggests that the reinsurance renewals will not see the steep hikes that had been expected.
Motor insurance rates have already increased significantly and while there may be some increase in the excess of loss renewal pricing, it’s likely that reinsurers who will also be anticipating a reversal of their own reserve actions may hold off on pushing for too steep a price hike.
Ultimately this will lead to a more stable environment for UK motor excess of loss reinsurance, benefiting the market and helping to underpin the stabilisation of motor insurance pricing as well.