Hastings to take £8.4m one-off hit from Ogden rate change

Insurer Hastings said on Tuesday that it will take a one-off pre-tax charge of £8.4m this year as a result of the change to the Ogden rate.

Excluding this impact, Hastings said it expects to report an underlying calendar year loss ratio for the six months to the end of June at the top of its 75% to 79% target range.

The Ministry of Justice said on Monday that it was changing the Ogden discount rate used to calculate compensation for personal injuries to -0.25% from -0.75% from 5 August. The discount rate reflects the return that personal injury claimants can typically expect to receive when they invest their compensation, with a lower rate leading to higher insurance costs.

Hastings said its 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 the best estimate will now be updated to reflect the change in the Ogden rate to -0.25%.

"The company confirms that total reserves continue to be held above the best estimate, recognising the inherent uncertainty in claims development patterns, particularly for bodily injury."

Shore Capital said the group's statement is "as one might have expected" and "the impact for Hastings and the other motor insurers is manageable and one-off in nature".

"The medium-term impact of a worse-than-expected rate is more likely to be higher prices, which should be a benefit to Hastings," said analyst Paul De'Ath. "If this can be a catalyst for wider price increases across the market that would be very positive for Hastings and help to return it to growth.

"While there is likely to be some negative share price reaction to today’s announcement, particularly around the loss ratio guidance, we continue to believe that the shares are under-priced, and the company is best placed to benefit from rising motor prices that we believe are even more likely in the second half of 2019F and into early 2020F."

At 0900 BST, the shares were down 4.7% at 195.40p.