(Corrects impact from lowering discount rate in fifth
* Delays 2016 preliminary results by week to March 7
* Awaits new Ogden Rate; says has reduced exposure to change
* Reiterates key performance target; shares up 2.6 pct
By Simon Jessop and Carolyn Cohn
LONDON, Feb 20 British motor insurer Direct Line
said on Monday new rules to determine lump-sum payouts
for personal injury claims would have less impact than
previously estimated because it had already started to factor in
a change, boosting its shares.
A government review into the so-called Ogden Rate is due to
be released soon, and most analysts expect the level to fall
from its current maximum 2.5 percent, in place since 2001, given
a slide in real interest rates since then.
Any downwards move in the rate would require insurers to pay
out more in cash to claimants now to ensure that returns over
their lifetime met the awarded compensation, a potential hit to
motor insurers' profitability.
Given its potential importance to the firm's financial
outlook, Direct Line said it had decided to delay the release of
its preliminary 2016 results by a week to March 7.
Direct Line said it was already applying a rate of 1.5
percent when calculating its personal injury claims liabilities,
which could mitigate the impact of any downward revision of the
Direct Line said in its 2015 results that a 100 basis point
increase from the 1.5 percent assumed rate would boost pretax
profit by 131.9 million pounds, while a 100 bps decrease would
hit profits by 190 million pounds.
It said on Monday the impact would now be "materially
lower," without giving a figure.
"These sensitivities have reduced over time as claims have
been paid and reserves released, and as the Group's lower
reinsurance retention has reduced its net exposure on new
business," it said.
The company also said it continued to expect to meet its
targeted combined operating ratio towards the lower end of a 93
percent to 95 percent range for the year ended December 2016.
A level below 100 percent indicates an underwriting profit.
In response to the statement, shares in Direct Line were up
2.6 percent, among the top gainers in a flat FTSE 100.
"We had been perplexed over the volatility of the Direct
Line share price these past few months, seemingly reflecting
concerns in the market over the implications of any change to
the Ogden discount rate," said Shore Capital analyst Eamonn
"This statement should allay those fears, in our view, and
hence dampen this volatility."
(Reporting by Simon Jessop; Editing by Mark Potter)