In a market that routinely prepares for the unexpected, Liz Truss’ announcement today on the discount rate was certainly unexpected. The decision will have far reaching consequences for UK insurers and their reinsurers.
First and foremost, all existing case reserves will need to be strengthened. This will have an immediate effect on the profitability of a number of insurers and reinsurers. Second, over time, the increased compensation costs will likely make their way into increased consumer premiums. At a time when UK motor business has not been attractive to reinsurers, it remains to be seen whether further reinsurers will exit this class of business.