Top insurers boost reserves by £100m due to discount rate

Aviva: £45m added to reserves

Aviva, Admiral and Direct Line have bolstered their reserves by nearly £100m between them as a result of the unexpectedly small increase in the discount rate last year.

The decision in July to increase the rate from -0.75% to -0.25% caught insurers by surprise, as a rate of at least 0% was expected and many had reserved and released funds on that basis.

Aviva, which reported a non-operating profit of £190m from reserving at 0%, has strengthened its claims reserves by £45m as a result of the new rate. Overall, the company’s operating profit increased 6% to a record £3.2bn in 2019.

Admiral, meanwhile, recorded an extra £66m of profit last year from reserving at 0%, and as a result “2019’s result took a hit of around £33m to adjust for our slight optimism”, it announced last week.

“Thankfully we should see some stability in Ogden in the coming years,” the company said as it announced record profits of £526m. “UK motor profit is materially higher in 2019 than prior years,” it told investors.

Direct Line, which released reserves of £55m on the 0% assumption, has increased its reserves by £17m. Its operating profit for 2019 was down 10% to £547m.

Meanwhile, the Department of Justice in Northern Ireland has proposed changing its existing discount rate of 2.5% to -1.75%.

Minister of Justice Naomi Long has asked officials to undertake a statutory consultation on the move with the Government Actuary’s Department and the Department of Finance.

Last October, the Scottish government decided to leave its discount rate unchanged at -0.75%.

Unlike England and Scotland, Northern Ireland has not updated its approach to setting the rate, although the Department of Justice said that “in due course” the minister would consider reviewing whether to do this.

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