Discount rate seminar, March 2017, London

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<ul><li><p>The Discount Rate: what you need to knowJames Arrowsmith</p></li><li><p>Learning Objectives</p><p> What has changed Impacts on injury claims. Which claims will be affected. Impacts of the change Claims behaviours which may emerge The future of the discount rate</p></li><li><p>Present capital value</p><p> 100,000 care per annum for 10 years. How much should the claimant get to cover this?</p><p>0</p><p>100000</p><p>200000</p><p>300000</p><p>400000</p><p>500000</p><p>600000</p><p>700000</p><p>800000</p><p>900000</p><p>1000000</p><p>1 2 3 4 5 6 7 8 9 10 11</p></li><li><p>The discount rate</p><p> the court shalltake into account such rate ofreturn as may be prescribed bythe LordChancellor (Damages Act 1996)</p><p> Wells v Wells 1999 principle of full compensation Index Linked Government Stocks (ILGS) yields</p><p> Set at 2.5% in 2001 by Lord Chancellor</p></li><li><p>The New Rate</p><p> The Damages (Personal Injury) Order 2017 Rate of minus 0.75% Effective from 20 March 2017</p></li><li><p>What losses are affected?Unaffected Affected</p><p>General Damages</p><p>All Past losses</p><p>Immediate future loss (eg treatment)</p><p>CRU liabilities</p><p>Future care</p><p>Future earnings</p><p>Deferred payments ( eg treatment)</p><p>Pension losses</p><p>Cost of an alternative home</p><p>Dependency claims following fatalaccidents.</p><p>Lump sum awards (eg handicap onthe labour market)</p><p>Litigation costs</p></li><li><p>Claims that will not be affected</p><p> Claims not relating to injury or fatal accidents</p><p> Claims involving only injury and/or past losses</p><p> In general, little impact on claims reserved under100,000.</p><p> Most liability claims will not be affected</p></li><li><p>Impact: example</p><p> Female, 250,000 care pa for life:</p><p>2.5% Minus 0.75% Change</p><p>Age 30 7.7 million 19.2 million + 150%</p><p>Age 50 6.0 million 11.4 million + 90%</p><p>Age 70 3.7 million 5.4 million + 46%</p></li><li><p>Ongoing losses</p><p> Care, earnings, case management, deputy,therapy, transport, dependency.</p><p> For example, a 30 year old female:</p><p>Discount Rate 2.5% Minus 0.75% % change</p><p>Care/CM 250kpa</p><p>7.7 million 19.2 million + 150%</p><p>Earnings 30k pa 0.6 million 1.1 million + 83%</p></li><li><p>Deferred losses</p><p> Future surgery, pension, deterioration leading tocare or loss of job.</p><p> A hip injury will lead to replacement surgery in 20years with a 20,000 loss:</p><p>Discount Rate 2.5% Minus 0.75% % change</p><p>Total 12,200 23,200 + 90%</p></li><li><p>Accommodation</p><p> The rate change calls the current approach(Roberts v Johnstone) into question.</p><p> Theoretical and practical issues to be addressed.</p><p> Anecdotally settlements are occurring with no sumfor accommodation</p></li><li><p>Impact on a claims portfolio</p><p> -</p><p> 5,000,000.00</p><p> 10,000,000.00</p><p> 15,000,000.00</p><p> 20,000,000.00</p><p> 25,000,000.00</p><p> 30,000,000.00</p><p> 35,000,000.00</p><p>Value pre rate change</p><p>at 2.5%</p><p>at minus 0.75%</p></li><li><p>Impact on a claims portfolio</p><p> -</p><p> 5,000,000.00</p><p> 10,000,000.00</p><p> 15,000,000.00</p><p> 20,000,000.00</p><p> 25,000,000.00</p><p> 30,000,000.00</p><p> 35,000,000.00</p><p>Value pre rate change</p><p>at 2.5%</p><p>at minus 0.75%</p></li><li><p>Impact on a claims portfolio</p><p> -</p><p> 5,000,000.00</p><p> 10,000,000.00</p><p> 15,000,000.00</p><p> 20,000,000.00</p><p> 25,000,000.00</p><p> 30,000,000.00</p><p> 35,000,000.00</p><p>Value pre rate change</p><p>at 2.5%</p><p>at minus 0.75%</p></li><li><p>Policyholder impact</p><p> -</p><p> 5,000,000.00</p><p> 10,000,000.00</p><p> 15,000,000.00</p><p> 20,000,000.00</p><p> 25,000,000.00</p><p> 30,000,000.00</p><p> 35,000,000.00</p><p>Value pre rate change</p><p>at 2.5%</p><p>at minus 0.75%</p></li><li><p>Immediate steps in claims</p><p> Re-pleading and re-reserving</p><p> Escalation and check limits of indemnity</p><p> Review and revise offers</p></li><li><p>Claim behaviours</p><p> Dependant on trial date possible further change</p><p> Consider settlement strategy (now or later)</p><p> Increased scrutiny on long term prospects lifeexpectancy and timing/quantum of deferred loss</p><p> Impacts assessment of periodical payments</p></li><li><p>Further reform</p><p> Statement to the Stock Exchange promised afurther consultation on methodology prior to Easter</p><p> Hammond acknowledged the need to balanceclaimant and consumer interests</p><p> Politically the expectation is for an increase.</p></li><li><p>Process</p><p> Consultation paper</p><p> Time for response</p><p> Prison and Courts Bill 2017</p><p> When and how much?</p></li><li><p>Questions</p><p>James ArrowsmithE: James.Arrowsmith@brownejacobson.comT: 0121 237 3981</p></li><li><p>All information correct at time of production.</p><p>The information and opinions expressed within this document areno substitute for full legal advice. It is for guidance only andillustrates the law as at the published date. If in doubt, pleasetelephone us on 0370 270 6000.</p><p> Browne Jacobson LLP 2017 The information contained withinthis document is and shall remain the property of BrowneJacobson. This document may not be reproduced without the priorconsent of Browne Jacobson.</p></li></ul>