Insurers Consider Judicial Review Challenge of (-)0.25% Discount Rate, As Direct Line Announces Half-Year Financial Performance

In September 2017 (here), we reported on the effect of the unexpected and significant departure from the long-standing 2.5% personal injury discount rate (PIDR) on FTSE 100 insurer, Direct Line.

We did so in conjunction with the release of the company’s interim profits, which demonstrated that the new (-)0.75% rate had had a less severe impact than initially feared.

At the time, the then Lord Chancellor, David Lidington MP, was already calling for the PIDR to rise to between 0% and 1%.

On this basis, Direct Line calculated its reserves cautiously, in anticipation of a 0% PIDR come summer 2019.

Last month, however, the former Lord Chancellor, David Gauke MP, announced the new (-)0.25% PIDR (read our feature article here) – a modest increase of just 0.5%, which surprised commentators and personal injury market players alike.

Today, the Law Society Gazette revealed that lawyers, on behalf of the insurance market, are examining whether or not to challenge the new PIDR by way of judicial review, on the basis that it has been miscalculated.[i] Director of General Insurance Policy, James Dalton, informed Insurance Insider last week that ‘all options are on the table’.[ii]

The upshot of the Government’s 1st rate review, as prescribed by the Civil Liability Act 2018, is that insurers, such as Direct Line, have under-reserved by overestimating the extent that the PIDR will increase by on 5 August 2019.

On Wednesday of this week, Direct Line published its half-year results, which divulged that its lump sum bodily injury reserves had been recalculated under the (-)0.25% rate to the cost of an additional £16.9 million.[iii]

This figure is double the damage (£8.4 million) reported by Hastings.

Nevertheless, the group’s prior-year reserve releases were still £171.6 million, while first-half operating profit was £274.3 million.

‘Looking forward, the group expects to continue setting its initial management best estimate conservatively. Assuming current claims trends continue, prior-year reserve releases are expected to continue to reduce further in future years, although they are expected to remain a significant contribution to profits’.


[i] John Hyde, ‘Insurers ponder JR challenge to -0.25% discount rate’ (2 August 2019 Law Gazette) <> accessed 2 August 2019.

[ii] Laura Board, ‘ABI mulls legal action against UK government on Ogden’ (19 July 2019 Insurance Insider) <> accessed 2 August 2019.

[iii] ‘Direct Line adds £17m to reserves over discount rate change’ (1 August 2019 Litigation Futures) <> accessed 1 August 2019.