The Discount Rate: some certainty in an uncertain world?
The Lord Chancellor's review of the discount rate will be completed by 5 August 2019.
Earlier this week the Lord Chancellor confirmed that he has commenced his review of the personal injury discount rate and will make a determination about the rate on or before 5 August 2019.
This was an announcement from the Lord Chancellor which didn’t come as any surprise, the clock having started running from the moment the Civil Liability Bill received Royal Assent on 20 December 2018 (“the Act”). Nonetheless, the announcement is a welcome and much-anticipated development signalling the beginning of the end of the period of uncertainty which has followed the discount rate review back in February 2017.
What happens next?
As specified in the Lord Chancellor’s statement, the Act prescribes the time in which the Lord Chancellor needs to consult, consider and announce. In reality this is a process that has been ongoing for a significant period of time already. The call for evidence on claimants’ investments behavior was launched in early December 2018 with responses submitted at the end of January 2019. There will now be a consultation with the Government Actuary and the Treasury which will commence no later than 7 April 2019, with a response required no more than 80 days thereafter which takes us to the end of June.
The Government Actuary’s Department have already done much of the ground work by publishing a technical memorandum at the end of January 2019 with a view to being transparent about its intended approach to the response, but it remains to be seen what the eventual impact of their methodology might be.
Following this period of consultation, the Lord Chancellor will make his determination in early August, there being no reason to expect that he will take any less time than is prescribed by the Act.
A predictable outcome?
It was as far back as September 2017, during his relatively short stint as Lord Chancellor, that David Lidington indicated the discount rate would likely settle somewhere between 0% and 1%. There has been some informal reliance on that indication ever since, by both claimants and compensators alike, when it comes to claims handling and settlement, along with an assumption that this is indeed the most likely outcome of the review.
However more recent discount rate announcements in Jersey (a dual discount rate) and Scotland (a forecast rate of -0.25%) reinforce the unpredictable nature of the exercise. Nothing can be taken for granted and perhaps we simply ought to expect the unexpected in August.
The industry waits with bated breath for the summer announcement in the hope that the review will indeed produce a “fair outcome” - whatever that might mean. Even if the rate cannot be accurately predicted, it is inevitable that not everyone will be happy with the outcome.
If nothing else, and after the initial rush to amend reserves, a period of certainty and stability ought to follow the Lord Chancellor’s determination. Well… at least for around 4 or 5 years until the next review!
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