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By William Jones

Jul 15th, 2019

Discount rate disappointment for Insurers

The Lord Chancellor, David Gauke, has today announced that he will lay a statutory instrument before Parliament to amend the discount rate to minus 0.25%. The rate had been widely expected to return to low positive figures but, having completed the process of a Call for Evidence and statutory consultation with the Government Actuary and HM Treasury, Gauke has reached the conclusion that a negative rate is still appropriate, taking into account:

  • actual returns available to investors;
  • actual investments made by investors of relevant damages;
  • such allowances for tax, inflation and investment management costs as thought appropriate; and
  • wider economic factors.

A full statement of reasons will be published and it will be fascinating to see how the consultation could have concluded that a low risk investor is likely to lose out on long term investments.  In the meantime, the figure will come as a surprise to most.  Indeed, we have already spoken to claimant lawyers who, despite obvious satisfaction at the rate, have expressed the view that it is unrealistically low.  It will be a particular disappointment for insurers who may well need to amend reserves for future losses upwards, all previous indications having been that the rate would return to 0.5% or even 1%.

The new rate will become effective on 5 August 2019 but must be reviewed within 5 years.

Clearly, this outcome was not even predicted by the authors of the Ogden Tables, which do not currently include a -0.25 column so will also need to be reviewed!

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