Only darkness for insurers at the end of the Northern Ireland discount rate tunnel
In accordance with the provisions of the Damages (Return on Investment) Act (Northern Ireland) 2022, the Government Actuary has now reviewed the discount rate in Northern Ireland and has determined that the rate should be -1.5%. This new rate will come into effect yesterday, 22 March 2022.
The new Northern Ireland discount rate
When confirming the new rate, the Department of Justice stated:
The discount rate remains low as a result of high expected inflation in the short to medium term, low expected interest rates in the longer term and the anticipated returns on bonds and equities remaining low.
The Department has sought to soften the blow to insurers and compensators by pointing out that if the new rate had been calculated in accordance with the previous methodology in line with the Wells v Wells decision, then the new rate would have been -2.25%. This is only likely to represent crumbs of comfort, at best, for those picking up the tab in relation to high-value claims.
It is undoubtedly the case that very few would have expected the rate to have been so low. In England and Wales, the rate was amended from -0.75% to -0.25% in August 2019. A month later, the Government Actuary Department published their determination of the Scottish discount rate concluding that it should remain unchanged at -0.75%.
As the methodology for the Northern Ireland discount rate is based on the Scottish model, most people predicted that the new rate would be -0.75%. Further, the Committee for Justice in Northern Ireland reported on 21 October 2021 that if the rate had been decided then, it would have been -0.75%.
Reactions to and impact of the new rate
The new rate of -1.5% will be disappointing for insurers and other compensators who hoped for an increase of more than 0.25% on the interim rate of -1.75%.
The new rate means that Northern Ireland continues to have the lowest discount rate of the UK jurisdictions and as such, damages in respect of future losses will be higher in Northern Ireland than in any other part of the UK. This brings the risk that claimants who suffer serious and long-term injuries will ‘forum shop’ and will, if at all possible, bring their claim in Northern Ireland rather than any other part of the UK.
It was a shock to insurers and compensators when the rate was dramatically reduced in May 2021 from 2.5% to -1.75%. The new rate may not have been as shocking but, nevertheless, insurers and compensators may be disappointed, especially when the date of the next planned review of the discount rate in Northern Ireland, July 2024, seems a long way away.