Saga to take £4m hit on injury claim rate change

Saga said it would make a one-off £4m charge against 2016 pre-tax profits after the government cut the discount rate on personal injury damages payouts.

The insurer said the charge would not impact on deliberations on the size of the final dividend and that the group remained well capitalised.

“Saga's older demographic provides the group with a defensive advantage, with lower claims frequency generating less exposure to large and small bodily injury claims, and to periodic payment orders,” Saga said.

“The group does not expect the (discount) Ogden rate change to have a material impact on its financial outlook.”
The government on Monday cut the rate to -0.75%, from 2.5%. Lord Chancellor Liz Truss said the cut reflected the fall in index-inked gilt yields, which are used in the calculation.

The Ministry of Justice (MoJ) said when victims of life-changing injuries accept lump sum compensation payments, the actual amount they received was adjusted according to the interest they could expect to earn by investing it.

In finalising the compensation amount, courts apply the discount rate, with the percentage linked in law to returns on the lowest risk investments, typically index-linked gilts.

The law states that claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life.

Compensation awards using the rate should put the claimant in the same financial position had they not been injured, including loss of future earnings and care costs, the MoJ said.

Saga shares were up 1.17% to 188p at 0925 GMT.