Admiral Group plc has become the latest UK insurer to cite the changes made earlier this year to the Ogden rate as a factor in its financial results for the first six months of 2017. But CEO David Stevens downplayed the impact of the change.
The Ogden rate is officially known as the discount rate. It is used for calculating the value of lump sum personal injury compensation following, for example, a car crash or medical negligence. On 27 February, the UK government set a new rate of minus 0.75% (it was 2.5%).
The new rate applies to all unsettled and new claims from 20 March 2017. Admiral calculates that the cost of the Ogden change, net of tax and reinsurance is approximately £150 million. This is unchanged compared to six months earlier, says the CEO.
Admiral Group CEO David Stevens, courtesy of Admiral
Recognised in 2016 results
The majority of the impact, in respect of premiums earned up to the date of change (£105m pre-tax, £87m post-tax) was recognised in the form of reduced 2016 profits.
The balance, along with the impact on business written but unearned at the date of change, will be recognised in the form of lower reserve releases and profit commission. This will take place in the current period and subsequent two to four financial years.
“In these circumstances, we are happy to report a marginal increase in profitability and to deliver a more material increase in the underlying dividend,” he said. He added that the first six months saw Admiral pursue short and longer-term growth opportunities.
Growth in turnover and customer numbers
Stevens reported growth in turnover and in the number of customer numbers in the company's existing businesses by over 13%. He noted that consultation on the discount rate is due to conclude imminently. The group looks forward to reviewing its conclusions, he said.
Admiral reports that return on equity rose to 55% from 50% a year earlier. It declared an interim dividend of 56.0 pence per share. This represents a normal dividend of 37.9 pence per share and a special dividend of 18.1 pence per share. It will be paid on 6 October.