FITCH HIGHLIGHTS THE RISK OF PERIODIC PAYMENT ORDERS

Managing the risk of periodic payment orders (PPOs) will be a substantial challenge for UK motor insurers, according to Fitch. The rating agency believes that, given the longer liability duration of PPOs, a greater proportion of reserves will need to be allocated to them. PPOs, which see personal injury compensation payments made in installments over time, rather than a lump sum, are proving increasingly popular with insurers. The extended duration of PPOs presents longevity, inflation and investment risks for motor insurers, which are traditionally issues for life insurers, Fitch said. On the positive side, Solvency II will bring greater consistency to PPO reserving assumptions used across the sector, thus reducing the risk of some insurers materially understating their PPO liabilities, it added.