Claims expenses are calculated by discounting expected future claims back to their present (or today's ) value using a so called "risk free " rate, usually the Government long term bond rates. So when interest rates go down, as these did very much in this half year, the value of future claims goes up strongly ( Present value will always go in the opposite direction to the discount interest rate). So claims have gone up because of a lower discount rate on future claims, and given that the COR is a combination of claims ratio plus expense ratio, then the COR goes up. Importantly, using a lower discount rate does not affect the actual claims to be paid in future, all else being equal. So, after the initial kneejerk reaction the market may settle down. However other disappointments were:1. Much higher attritional claims ratio in Australia, and 2: Prior year claims releases had a significant effect on supporting the claims ratio, and this level of support is not likely to be repeated in future.
Macquarie upgrade to outperform, page-24
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Price($) | Vol. | No. |
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16.820 | 14709 | 3 |
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