Injury payouts increase sinks car insurer shares

Insurance firms plunged as fears mounted that profits could be hit by compensation payouts.

Yesterday, changes were announced to an interest rate used to decide how much compensation should be awarded to victims of serious accidents. The rate determines the discount on the award, because it takes into consideration how much the person receiving the money could earn in interest on the amount if they invested it for the long-term.

The Ogden rate is based around Government gilt yields so for some 16 years it has sat at 2.5pc – the annual return someone might previously have expected if they invested in gilts.

But campaigners have argued that with interest rates stuck at historical lows the current rate doesn’t work any more.

With record-low interest rates and rising inflation, gilt investors are now getting negative returns on their cash. Yesterday the Ministry of Justice made the landmark decision to slash the Ogden rate to -0.75pc. While that will mean an increase in payments for those with severe injuries (it doesn’t apply to minor whiplash claims) motorists and insurers are likely to bear the brunt.

experts estimate that the typical motor policy could rise by £75 a year under the new rate, and young drivers could see their premiums soar by up to £1,000.

It’s the latest blow to motorists, who will already be hit in the summer when the insurance premium tax is hiked again.

Insurers, meanwhile, are likely to see their bottom line damaged by the changes. Direct Line said pretax profits could fall by as much as £230m. It is set to publish preliminary results on March 7. shares dropped 7.1pc, or 26.1p, to 338.5p.

Admiral has delayed its results, which were due on Wednesday, and said the cost could be up to £175m. The firm reassured investors that it still expected to maintain its final dividend at 51.5p. shares – which had fallen heavily at the opening of the market – climbed back so that they only tumbled 2.5pc, or 46p, to 1824p.

Liberum kept its ‘Buy’ rating on the AA. It said insurance makes up only around 19pc of the group’s earnings, and with about 115,000 policies around two-thirds of that is motor insurance. shares were off 0.2pc, or 0.6p, to 259.9p. Aviva was down 0.4pc, or 2p, at 501.5p. The FTSE 100 edged up 0.1pc, or 9.3 points, to 7253.

Outsourcing firm Bunzl climbed as it reported operating profit was up 15pc at £525m. a weak pound and a number of acquisitions helped drive performance over the year. Bunzl hiked its dividend for the 24th consecutive year, increasing it 11pc to 42p. The firm is planning more acquisitions this year – yesterday is announced the purchase of singapore company LsH for £5m. shares advanced 3.4pc, or 74p, to 2245p.

Senior stumbled as it reported that pre-tax profit had tumbled 25pc to £55.5m. a weaker pound had hurt performance at the engineering solutions provider, which said it had been a challenging year. revenue growth in its aerospace division was offset by problems in the Flexonics business, which is involved with vehicle emission control products. Performance in the division is expected to be worse this year, too. shares slipped 6pc, or 11.2p, to 175.8p.

Quartix soared as revenue leapt 19pc to £23.3m for the year. The firm supplies vehicle tracking systems to insurers – the black box telematics systems you put in your car to get a lower insurance premium. Group pre-tax profit was up 9pc at £6.5m. shares surged 13.8pc, or 45p, to 370p.