XL Announces Ogden Rate Change Impact
XL Group Ltd announced the estimated impact of the recent UK Ministry of Justice’s announcement of 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. The new rate will be effective on March 20, 2017.
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 to be recognized in the first quarter of 2017, 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.
