RSA has become the second motor insurer in a week to post a hefty rise in first-half profits and shareholder dividend, despite taking a hit from the revised discount rate used to calculate personal injury compensation payments.
RSA group booked a £42m net charge for the first six months relating to the revision of the [Ogden] discount rate in March from 2.5% to -0.75%. Following intense lobbying by the insurance industry, the result of a government review of the discount rate is expected this week.
Claimant solicitors insist insurers are well equipped to shoulder the additional liabilities, despite dire warnings about the impact of the change on bottom-lines.
The discount rate change helped cut RSA’s UK underwriting profit from £76m in the same period last year to £17m. Excluding the impact of the rate change, profit would have been £56m.
But RSA group chief executive Stephen Hester commented: ’The strength of our regional line-up showed well in the period. Our UK business had the toughest time with Ogden costs…but, excluding Ogden, results were in line with our plan even here.’
Overall, RSA posted a 15% rise in operating profits to £360m, beating City forecasts, and raised its interim dividend by a third to 6.6p.
Yesterday, Direct Line posted sharply higher profits after the impact of the discount rate change turned out to be less severe than it had feared.