Discount Rate Update – Horwich Farrelly Northern Ireland

The ongoing issues in relation to the discount rate in Northern Ireland appear to have been concluded. 

The Damages (Return on Investments) Bill (‘the Bill’) completed its final stage in the Northern Ireland Assembly on 7 December 2021. The next stage will be that the Bill receives Royal Assent and is enacted, with an Order made to commence sections 1 and 2 of the schedule to what will then be the Act.  Once these provisions have been commenced the Government Actuary has 90 days in which to review the rate using the methodology within the legislation.

The Department of Justice (‘DOJ’) will liaise with the Governments Actuary’s Department (‘GAD’) and it is believed preliminary work has commenced, which should allow a review to be completed sooner than the 90-day limit.

Without doubt, there has been a significant amount of ambiguity in relation to the discount rate in Northern Ireland. However, Justice Minister Naomi Long MLA commented that she had commended the Bill to the House, saying she was confident that the methodology will achieve the aim of reaching full compensation, whist ensuring fairness for defendants. 

Mervyn Storey MLS (chair of the Committee for Justice) reaffirmed this, stating that Wells -v- Wells no longer reflects how a claimant would invest and that while setting the rate is not an exact science, he was aware the impact over compensation could have on the health system and insurance premiums. 

We can confirm that Matthew Fitzpatrick, head of Horwich Farrelly Northern Ireland, had written to Naomi Long detailing the adverse impact the previous discount rate would have on insurers and indeed on every policy holder in Northern Ireland.

Next steps:

• The Bill now goes forward for Royal Assent, which usually takes between 4-6 weeks and is likely to be before the end of January 2022. Once Royal Assent has been granted, the DoJ lodges a Commencement Order for the Act, which enables the Government Actuary’s Department to start reviewing the rate. The DoJ has already asked GAD to start preparing for that review and hopes that will take fewer than the 90 days set out in the Act.
• Once GAD has set the rate and reported it to the DoJ, the Justice Minister will lay it before the Assembly and the new rate will come into effect the day after it is laid. The DoJ is expecting all this to happen before the dissolution of the Northern Ireland Assembly on March 31 2022. However, as we have seen with other legislation this is not guaranteed as the process may take longer, or the Assembly could collapse earlier due to party politics.
• If GAD sets the new rate after dissolution, then the DoJ would be unable to lay the report before the Assembly. It would have to wait until the Assembly reconvenes after the election on May 5 2022.

There have been a number of issues that have complicated setting of the discount rate – the suspension of the Northern Ireland Assembly and the Judicial Review from claimant solicitors seeking to impose a -1.75% rate.

In February 2020 Naomi Long announced that she intended to amend the discount rate from 2.5% to -1.75% under the terms of the Damages Act 1996. There was a commitment, albeit vague, to consider a review of how the rate is set.

The ABI met Naomi Long last April to emphasise the urgent need for reform of the discount rate and the Minister gave a commitment to early consultation on that with a view to introducing legislation at Stormont as soon as possible. That consultation ran in summer 2020 and informed the Bill which was eventually published in March this year.

Although it has taken nearly another year, we are now in a position where the GAD will review and set the rate. We have moved from a position of -1.75% being imposed to a position where a proper assessment of the rate will be undertaken. The -1.75% rate could have been in force for several years but it will hopefully be replaced within 12 months of it coming into effect.

Horwich Farrelly Northern Ireland were able to influence the change through their relationship with the ABI and will continue to be at the forefront of considerations for the discount rate. We currently have a number of high value cases running, the outcome of which will depend on and be influenced by the discount rate and any changes applied.

Matthew Fitzpatrick and his team in Belfast – together with colleagues from our offices in England & Wales, Dublin, and Glasgow whose cross jurisdictional cases may be impacted – will be working closely with clients to review estimates and support with any connected issues.

Should you need any immediate assistance or further information, please contact Matthew Fitzpatrick directly.

Publication Author:

Matthew Fitzpatrick