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Hastings shares steer lower as it expects profit hit from new Odgen rate

The UK government announced on Monday that the Ogden rate will rise to -0.25% from -0.75%, less than insurers were hoping for

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Shares in the motor insurer dropped 5% in morning trading

Shares in Hastings Group Holdings PLC (LON:HSTG) steered lower after the motor insurer said it would take a £8.4mln hit to profits from a change in the so-called Ogden rate.

The UK government announced on Monday that the Ogden rate – the discount rate used to calculate how much compensation motor accident victims should be given for serious injuries – will rise to -0.25% from -0.75%.

READ: UK government raises Ogden discount rate by less than expected

The change came after the government kicked off a review following pressure from motor insurers whose profits were dented by a cut in the Ogden rate from 2.5% in 2017.

However, the new rate is lower than the range of between 0% and 1% predicted by analysts, meaning insurers will have to pay more than expected.

The higher the Ogden rate, the less insurers have to pay out as a lump sum as it assumes better annual investment returns for those amounts.

The changes will be implemented on August 5.

In a Tuesday statement, Hastings said it expects to take a one-off pre-tax charge £8.4mln in its 2019 financial year.

“Excluding this impact, the company expects to report an underlying calendar year loss ratio for the six months to 30 June 2019 at the top of its 75% to 79% target range,” it said.

Hastings added that it had held reserves based on a rate in the 0-1% range but would make changes to reflect the new rate.

Shares in Hastings fell 5% to 194p in late morning trading.

Quick facts: Hastings Group Holdings PLC

Price: 176.3 GBX

LSE:HSTG
Market: LSE
Market Cap: £1.17 billion
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