UK motor reinsurance prices to go up despite "conservative" reserving practices

The brunt of an expected one-off reserve charge of approximately £5.8 billion due to the Ogden personal injury discount rate cut may be borne by reinsurance, according to market estimates. While reinsurers told Intelligent Insurer that they are adequately reserved they are preparing for material rate increases.

"Excess of loss reinsurers are particularly affected by the Ogden rate change because the impact is going to be felt most dramatically on large claims," said Grange Turner, director at broker Willis Re.

In February, the UK government shocked markets by cutting 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 discount rate has been unchanged since 2001.

Reinsurers told Intelligent Insurer that they are unconcerned about the level of additional reserves that may be required due to the Ogden rate change, despite not having yet made the calculations.

Hannover Re writes about £50 million UK motor excess of loss business, Hannover Re CEO Ulrich Wallin told analysts when presenting full-year 2016 results. "We believe we are very conservatively reserved there and would believe that it is sufficient to deal with the new Ogden tables."

R+V Versicherung, a German cooperative insurer and reinsurer said to be relatively strong in this segment, told Intelligent Insurer that the Ogden change rate will affect around €150 million of revenues. "The effect on reserving is currently being analysed. Based on past conservative reserving practices for similar situations there is currently no immediate negative impact foreseeable on the company’s financial performance," the company said in a statement received by Intelligent Insurer.

Munich Re responded to an Intelligent Insurer request for comment by saying: "As a change in the Ogden discount rate has always been a possibility, we have considered such a scenario as one of the reserve risks for many years already. We reserve for bodily injury exposure (lump sum payments and periodic payment orders) in the UK in line with Munich Re’s cautious reserving practice. However, we will only be able to fully assess any impact over time. From today’s point of view, we do not expect a material adverse effect on our reserve position."

Swiss Re told Intelligent Insurer that "the estimated net impact of the Ogden rate change is well within the group reserve margins and Swiss Re continues to be adequately reserved."

But motor reinsurance prices are set to go up nevertheless. Hannover Re’s Wallin said that "there will be significant rate increases on UK motor. However, at this point of time, we are analysing the numbers really in order to come up with pricing."

Swiss Re noted that "given the significance of the change, reinsurance rates will be adjusted to reflect the impact of the new discount rate on lump sum settlements."

This is just a snapshot of a longer feature on the trends in the UK motor reinsurance sector. If you want to know more about the factors which will affect the motor reinsurance price increases, please click here.

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