Heard of the Ogden rate? Readers of our sister site Insurance Business UK certainly have. The rate is designed to help courts assessing compensation awards and specifically how much interest the money will earn when invested – the higher it is, the lower the initial lump sum. In the UK, around two weeks ago, this rate was slashed for the first time in 15 years, dropping from 2.5% to -0.75% in a move that industry bodies there have described as “crazy”.
Today, a major insurer that has its roots in the UK but is a giant in the Canadian market too, felt the impact of the rate adjustment as it revealed its 2016 results.
Even though the Aviva Group saw operating profits climb 12% to £3,010 million, with general insurance net written premiums climbing 15% to £8,211 million, its combined operating ratio was 101.1% including the impact of the Ogden rate and 95.2% without it – a climb from 94.6% the prior year.
Speaking on a conference call earlier today, Aviva CEO Mark Wilson described the rate as “disjointed policy making” noting that it is “disappointing” because it impacts older and younger drivers – but he believes that change may be coming.
“For us, with our capital position, it’s not really impacted what we’re doing anything on dividends and buybacks and so on even though it has a bottom line impact,” he said. “It’s not really about us – investors look through it.
“I applaud the fact that the Government is carrying out an urgent review and they need to. I look around the world and there is nowhere else with a rate like this and it makes no financial or logical sense. I believe that common sense will prevail.”
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Focusing specifically on the Canadian business meanwhile, the company enjoyed some eye catching results with operating profits at £269 million (approximately C$442 million), an increase of 16% in local currency terms. Net written premiums leapt by 14% to £2,453 million with chairman Maurice Tulloch telling Insurance Business that a large part of the success could be attributed to the acquired RBCI business.
“The RBC business was a big part of our success,” he said. “We’ve had six months of RBC volume and that is the number one brand in Canada and a very fine partner.”
Wilson was also keen to emphasise that brokers still have an important role to play in the company’s future.
“We see ourselves very much as multi-distribution – it really comes down to how our customers want to deal with us,” he told Insurance Business. “Brokers continue to be a key part of that – and when I talk about digital, I’m also talking about our brokers in the digital space.
“The broker channel is critically important,” added Tulloch. “We continue to invest … so it is a very important channel for us.”
In a statement issued to Insurance Business, UBS commented that they were an “overall strong set of numbers” and outlined that it expects a “positive reaction.”
Discount rate cut to cost insurers £2 billion a year, says public body
Aviva reveals discount rate will give it a nine-figure hit