XL Group Ltd. said that it estimates the impact of the recent Ogden Rate change to be around $75 million, contained within its UK motor reinsurance book.
XL does not underwrite much in the way of UK motor insurance or reinsurance business now, but has some exposure from business underwritten on a non-proportional reinsurance basis.
The company said that this portfolio had been scaled back in 2009, as periodical payment orders, or PPOs, became more prevalent and more costly in the UK motor space. Last year XL underwrote less than $10 million of gross UK motor premiums.
The UK Ministry of Justice announced a significant decrease of the discount rate used to calculate lump sum awards in UK bodily injury cases, known as the Ogden Rate, from +2.5% to -0.75%, a decrease of 325 basis points and the first rate change since 2001 recently. The new rate comes into effect on March 20th 2017.
XL estimates that the pre-tax impact of the rate change on carried reserves for relevant lines of business is around $75 million, which it said it will recognise in the first quarter of 2017 and is primarily related to XL’s UK motor business in its reinsurance unit.
Classes of business impacted by this rate change are UK motor bodily injury, UK employer’s liability, and UK public liability. XL said that impacts to its insurance business are forecast to be modest due to the low level of UK bodily injury claims in its portfolio as well as the reinsurance protection it has in place.