The Lord Chancellor (LC) Liz Truss bit the bullet today and set the discount rate at minus 0.75%, to apply from 20 March. The news was issued via this statement to the Stock Exchange at 07:00 this morning. As a matter of process, Ms Truss should be congratulated for not ducking a very awkward decision – even if the financial implications of her decision are of huge importance for new and current outstanding cases alike. As to substance, views will inevitably differ hugely.
The lowered rate (it’s decreasing by a staggering 325 basis points from 2.5%) has attracted notable criticism this morning from insurers because of its inflationary effect on awards and reserves. The LC said today that she “recognise[s] the impacts this decision will have on the insurance industry. My Rt. Hon. Friend the Chancellor will meet with insurance industry representatives to discuss the situation.” It could be expected that that might be a fairly high-tempered discussion.
Just over a year ago, the High Court delivered its decision in Pickard and Marshall v Generali and others. The case involved a road traffic accident in France in which two English residents, Marshall and Pickard, were injured (Mr Marshall died from his injuries) in a collision caused by an uninsured French driver colliding with Mr Pickard’s stationary car (insured with RSA) and forcing it against another French vehicle (insured with Generali). The question of the applicable law was appealed and a decision on the point was given on 19 January 2017.
Somewhat out of the blue after nearly a three year silence on the topic, on 7 December 2016 the Lord Chancellor signalled her intention to make an announcement about the discount rate by 31 January 2017. The process behind this was challenged by the ABI by way of judicial review. That was unsuccessful, with judgment to that effect from Baker J last Friday, 20 January, and the Lord Chancellor undertook to announce her decision on 31 January.
The latest twist is that this morning she revealed that her considerations had “taken longer than expected” – but with no explanation as to why – and as a result, things will now drift into February. As with the news in December, today’s update was issued by the Lord Chancellor on the regulatory news section of the section of the Stock Exchange’s website: