The latest accounts from Municipal Mutual Insurance shows there are few changes but, as Bill Sulman, Chairman of Aon’s Public Sector Practice, explains, members of the scheme of arrangement should remain prudent.
Municipal Mutual Insurance’s (MMI) latest annual report and accounts make for reassuring reading, with a relatively stable landscape leaving the levy unchanged. But, with claims uncertainty on the horizon, there is the potential for this to change.
The main points in the accounts, which cover the year to 30th June 2018, are:
- The current accumulated loss on the balance sheet is now nil, down from £1.4m in the previous year.
- No further reserve strengthening has been required.
- A lower number of mesothelioma claims were reported to MMI, compared with previous years.
- A slightly higher number of new abuse claims were reported to MMI than in 2017.
Overall, the improvement in mesothelioma claims has offset the increase in abuse claims. As a result, for members of the scheme of arrangement, who currently contribute 25% to all future claims payments, no further increases to the levy are currently anticipated.
However, the nature of the claims being handled by MMI means that any projections are subject to substantial uncertainty. As a result, there is no guarantee that the current contribution level will be sufficient going forward.
In particular, the speed of deterioration in the abuse claims experience over the past few years may return, turning the recent stability into a temporary lull.
There are a number of factors that could potentially drive up the volume of abuse claims. The 2017 Supreme Court judgement in the case of Armes v Nottinghamshire County Court could result in more claims for local authorities and possibly MMI too. This found that local authorities were vicariously liable for the abuse committed by foster parents.
Similarly, the Independent Inquiry into Child Sexual Abuse interim report recommended that a register of public liability insurers could be introduced to assist claimants. It’s likely that MMI would be included on this register, which could mean more claims are reported.
Also in this space, the Scottish government has announced that it is setting up a compensation scheme for survivors of abuse. It is as yet unclear how this might affect claims and MMI reserves.
There is also uncertainty around future mesothelioma claims. Although MMI’s claims are in line with the market, and many believe the peak of reporting of claims is now over, there has been considerable volatility over the past few years. The long latency period, coupled with the increased costs associated with new immunotherapy treatments, means it remains an area to watch.
We also assume that MMI has factored in the Ogden discount rate changes in estimating the claims provisions this year too as this could have a significant bearing on future costs.
Given the uncertainty around claims going forward, we would recommend that members of the scheme review their reserving policy to ensure adequate funds are available to pay claims from their self-insured provisions.
In addition, we are also recommending that members continue to reserve for an additional percentage levy going forward. Although it is unlikely that a 100% contribution will be payable at any time, there is still a long way to go and members need to be prudent with their reserving strategy.
For more information about the issues raised in this update, please contact your account manager or email Bill Sulman at email@example.com.