XL expects $75mn charge from UK Ogden rate change

Bermuda-based XL Group has said that it expects the UK’s Ogden rate change decision to cost the re/insurer around $75 million.

The UK’s Lord Chancellor and Justice Secretary Elizabeth Truss has decided on February 27 to change the Ogden discount rate to -0.75 percent from 2.5 percent. The so-called Ogden tables are used to calculate compensation awards for serious personal injuries. The change exceeded the level expected by the industry.

XL estimates that the pre-tax impact of the rate change on the company’s carried reserves for relevant lines of business is approximately $75 million, adding that it will be recognized in the first quarter of 2017. The charge is primarily related to XL’s UK motor business in the reinsurance segment.

Classes of business impacted by this rate change are UK motor bodily injury, UK employer’s liability, and UK public liability. Impacts on the insurance segment are expected to be modest due to the low level of UK bodily injury claims in the company’s portfolio as well as reinsurance protections.

XL has not been a large writer of UK motor business, but has some exposure from business written on a non-proportional reinsurance basis. This portfolio was scaled back beginning in 2009 as periodical payment orders, or PPOs, became more prevalent and more costly. For the year ended December 31, 2016, XL’s gross UK motor premiums were under $10 million.

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