Ageas SA/NV's U.K. insurance business is recovering from a downturn prompted by the reduction in the so-called Ogden rate, the Belgian parent's CEO said during a second-quarter earnings call.
The discount rate used to calculate lump-sum compensation in U.K. personal injury claims was reduced to negative 0.75% from 2.5% in February, resulting in higher payments from insurers to the beneficiaries of successful claims.
"In the U.K., the second-quarter net result — although still impacted by Ogden — shows first signs of recovery, but it remains a challenging environment," Bart de Smet told analysts.
In the first half, the Ogden rate impact on Ageas (UK) Limited was €31 million, as the unit booked a net result of €11 million, down from €35 million a year earlier. However, that entire net result was achieved in the second quarter, compared to the year-ago €10 million.
Ageas expects a further Ogden-rate impact of €10 million in the second half, de Smet said. He added that the solvency and capitalization of the U.K. unit are now slightly improving after the business lagged behind others in the group due to adverse market conditions.
"In the first quarter, we announced the U.K. action plan to strengthen the local solvency position," the CEO told analysts.
"This was a combination of de-risking in the investment portfolio in the first quarter and a stop-loss reinsurance cover, as well as a capital strengthening of €77 million in April. Thanks to these measures, the U.K. solvency ratio went up to 131% compared to 100% at the end of last year."
The firm's first-half nonlife combined ratio in the U.K. stood at 100.1%, down from 105.7% a year earlier.
'A big reverse'
The group's overall Solvency II ratio went up year over year to 197.8% from 191.2%, as it posted a first-half attributable net result of €283.6 million compared to the year-ago attributable loss of €67.2 million. Ageas also announced a €200 million share buyback that will run from Aug. 21, 2017, to Aug. 3, 2018.
Commenting on the rise in the group's Solvency II ratio, CFO Christophe Boizard said: "This is a big reverse of the situation we had at the end of March.
"During the second quarter, our solvency position benefited from positive trade evolution, both in Belgium and continental Europe, with a special mention to Portugal, while in the U.K., the solvency position was strengthened via the implemented action plan."