Ogden limbo
Rather than a picture of a personal injury claim, or the Houses of Parliament, I thought I'd post one of Ruby looking bored - waiting for that walk, waiting for that treat - something, anything.
It's a bit like the government's plans for the Ogden rate - we're in limbo. Here's how I see things right now.
It's impossible to make a “statistical” best estimate of the future Ogden rate, because it will ultimately be decided by political factors.
- The most recent official development is still the Justice Committee’s paper, which challenged the government’s assumptions about how claimants invest their awards in practice. See my note at the time: https://www.dhirubhai.net/pulse/ogden-more-delays-note-caution-charl-cronje
- We have is a new Lord Chancellor - the 4th in 18 months. That may delay things. But, on the other hand, the new minister has a reputation for getting things done. And, in today’s press, a Ministry of Justice spokesperson was reported as saying that they will “soon” be responding to the Justice Committee’s paper.
- No-one I’ve spoken to is expecting a new rate to be in place until next year, although there is an expectation of further clarity on the likely rate before then.
- Long-duration real gilt yields remain lower than -0.75%, so it is still possible (albeit unlikely) that the Ogden rate could go even lower, if the current methodology is not changed (https://yields.lcp.uk.com).
- A small but increasing number of motor claims are starting to go to court and settling on the -0.75% rate. The longer this goes on, the more difficult it will become for government to increase the rate significantly.
What next?
Many insurers are currently considering how to set their Ogden assumptions for accounting and other purposes. In setting a best estimate, I think it’s worth bearing in mind the 0%-1% range quoted by government but also recognising the risk that the subsequent Justice Committee challenge might push things towards the lower part of that range, and the small risk that the rate stays the same or reduces.
Non-Executive Director, Trustee, Experienced Chief Risk Officer
7 年A good observation - and one which applies more often than I suspect most people want to admit. Political decisions are a very big influence on individuals and businesses - as life companies with annuity portfolios found to their cost. Chalk up one more to the long list of "things people working in risk need to be able to think about"!