Based on results for 2018, some of the major motor insurers look to be hit with a multi-million pound blow as the rate remains in the negative

Motor insurers have been left bitterly frustrated with the revised figure for the discount rate, and it looks to have hit their wallet pretty hard as well.

On Monday, David Gauke MP announced that the Ogden figure would change on 5 August to -0.25%, from -0.75%, lower than insurers had been preparing for.

What were insurers expecting?

In September 2017, a review of the revised rate was carried out for when it plummeted from 2.5% to -0.75% six months earlier. And in that review, it was suggested insurers should prepare for a rate between 0% and 1%.

Most insurers, being as risk averse as they are, went with the lower figure and stated in their financial results for 2017 and 2018 that they were releasing reserves on the basis of a 0% Ogden rate.

Ben Wilson, director at EY told Insurance Times: “At year end, most insurers moved to predict it at 0%. It was always a bit optimistic to predict above zero, but the government said two years ago that it might end up being between one and zero percent.”

Costs to insurers?

Earlier this week, Hastings said that it was expecting to incur a one-off, pre-tax charge of approximately £8.4m due to its miscalculation and inaccurate prediction of the rate change.

“As previously indicated, the Group’s insurance subsidiary has held best estimate reserves consistent with an Ogden rate in the range of 0% to 1%, in line with the range indicated by the Government previously and the rate at which large bodily injury claims have been settling,” it said in a statement.  

“The Company can confirm that the best estimate will now be updated to reflect the change in the Ogden rate to -0.25%.” 

Hastings said it “expects this to result in a one-off pre-tax charge to its 2019 financial statements of £8.4m”.

Now, after looking at results for some major insurers it looks like they will take a blow to their reserves also.


Predicted cost of miscalculation, based off financial results for 2018











In its 2018 results, Admiral Group gave two figures for its profit before tax.

For a 0% Ogden basis, it reported a profit of £476.2m, and for a -0.75% rate, it reported a profit of £410.2m.

This gives a difference of £66m, meaning a -0.25% would cost them £22m in comparison to the 0% basis it reported.

LV= reported operating capital by the general insurance business of £38m for 2018. This was already significantly lower than the year before when it reported £170m.

However, LV= stated that “this includes a £22m benefit due to our reserving assumption for the Ogden discount rate moving to 0%”.

This would mean that it was off by around £7.3m.

Similarly, Direct Line Group stated in its 2018 results that “in respect of 2018, we have assumed the higher Ogden rate of 0%, which contributed £55m to operating profit”.

This gives them an immediate cost of approximately £18.3m.

And finally, Aviva said in its statement that it had “revised the discount rate to 0%, giving rise to non-operating profit of £190m”.

This suggests a miscalculation of approximately £63m.


While all insurers, apart from Hastings, have either refused to comment on the speculative losses or have not responded to requests for comment, it is expected that all will give an update on the effects in their next financial statements, with both LV= and Admiral’s due in August.

AXA and Zurich did not allude to how Ogden impacted its financial reports.

However, following Gauke’s announcement, both firms did vent their frustration at the decision.

David Williams, managing director of underwriting and technical services at AXA said it was “disappointing to say the least,” while Zurich’s chief claims officer David Nichols said the new rate will lead to increased costs.

He said: “The government’s failure to change the discount rate to a balanced level will only serve to increase the cost and, therefore, affordability of certain types of insurance.”

Allianz didn’t take measures to price in an improved Ogden rate prior to announcement.

Allianz general manager for commercial and personal Simon McGinn said: “Whilst there was still some uncertainty, our approach was to maintain the status quo and reflect the current rate in our pricing until a formal decision was made.”

But even McGinn was unhappy with the change.

He added: “We had hoped to see the discount rate increase more significantly and do not believe that -0.25% goes far enough.

“We believe providing seriously injured people with a fair level of compensation is the right thing to do, but the insurance industry is currently overcompensating.”

Lawyer victory

However, PI lawyers praised the decision, with Association of Personal Injury Lawyers’ president, Gordon Dalyell urging the industry to “remain vigilant” that the decision gives injured people fair compensation.

And Stuart Hanley, deputy head of Minster Law called the decision by Gauke “a humane one”, stating that it is likely to mirror the outcome of Scotland’s Damages Act.