Last checked at 2 Mar 2017 14:30
Frenkel Topping Group plc
("Frenkel Topping" or the "Company")
Review of Ogden Discount Rate
Frenkel Topping (AIM: FEN), a specialist independent financial advisor and asset manager focussed on asset protection for vulnerable clients, provides the following update in relation to the announced change to the discount rate from 2.5% to -0.75% and how it affects the business.
Discount Rate from 2.5% to -0.75%
On the morning of 27 February 2017, the Lord Chancellor ruled that the Ogden discount rate which is used to calculate the damages awarded in clinical negligence and personal injury claims be set at -0.75% rather that the current 2.5%, effective from 20 March 17.
This announcement has dramatically changed how compensation damages are calculated. The last change to the discount rate was in 2001.
Impact on Damages Award
We are revising the Assets Under Management (AUM) growth assumptions in our business as follows;
Year | Previous Organic Growth Assumption | Revised Organic Growth Assumption |
2017 | £75m | £100m |
2018 | £100m | £180m |
2019 | £100m | £180m |
Frenkel Topping has calculated that the size of court damages is likely to grow significantly. Using pipeline cases, Frenkel Topping has calculated the following increases as examples:
Quantum @ 2.5% discount rate | Quantum @-0.75% discount rate | Quantum uplift | ||
Claimant Age | Life Expectation | @ 2.5% | @ -0.75% | |
44 | 7 year reduction | £ 5,199,736.00 | £ 7,640,843.79 | 47% |
57 | Normal | £ 3,856,463.00 | £ 6,122,055.90 | 59% |
11 | Normal | £ 3,619,529.00 | £ 6,892,115.39 | 90% |
36 | Normal | £ 6,637,936.00 | £ 12,596,746.00 | 90% |
13 | 24 year reduction | £ 9,956,514.00 | £ 18,505,359.33 | 86% |
36 | Normal | £ 1,784,602.00 | £ 3,382,087.37 | 90% |
58 | 5 year reduction | £ 3,672,383.00 | £ 5,545,186.61 | 51% |
8 | 18 year reduction | £ 5,787,612.00 | £ 14,031,550.15 | 142% |
Having conducted an analysis over the last 6 months of large loss cases that we have been involved in, the average increase in overall quantum, had the discount rate been -0.75%, is c.80%.
Impact on Periodical Payment Orders (PPO)
A client's decision to receive a PPO instead of a lump sum has been impacted by this change to the discount rate. Claimants who have historically taken a PPO will now favour a lump sum because the peace of mind and diminished need for investment risk, previously only available with a PPO, has in effect been provided within the lump sum. The claimant now not only has a lump sum of damages significantly increased to meet their lifetime needs, but has the added advantage of the flexibility a lump sum award offers.
Clients' desire to take investment risk
With a historic 2.5% discount rate, clients need to take investment risk in order to generate this level of return, net of fees. With a revised -0.75% discount rate, clients' risk appetite is reduced. This is aligned to the ethos of Frenkel Topping's Safety First Portfolios.
Impact to Frenkel Topping
The rate of growth of AUM is expected to accelerate exponentially as a result of clients in receipt of large damage awards.
With larger awards, lower periodical payment orders and a core investment strategy geared towards a lower risk appetite, the market place the company operates within and thus the AUM and profitability of the Company is likely to grow, as shown in the tables below:
Organic AUM growth per annum £'m | Operating profit £'m | Closing AUM £'m | ||||||||
2017 | 2018 | 2019 | 2017 | 2018 | 2019 | 2017 | 2018 | 2019 | ||
75 | 100 | 100 | 3.40 | 4.30 | 5.50 | 820 | 920 | 1,020 | ||
100 | 100 | 100 | 3.53 | 4.55 | 5.75 | 845 | 945 | 1,045 | ||
100 | 150 | 150 | 3.53 | 4.80 | 6.50 | 845 | 995 | 1,145 | ||
100 | 200 | 200 | 3.53 | 5.05 | 7.25 | 845 | 1,045 | 1,245 | ||
Given our expertise in this market place we recognise that there will be a hiatus in cases settling as court dates will be postponed as lawyers recalculate schedules based on the new discount rate. Therefore the uplift in AUM is expected to flow during H2 2017.
Jason Granite, Executive Chairman said "The changes announced will dramatically increase damages paid to our future clients and as a result, accelerate growth of AUM at Frenkel Topping. The Board is excited at the additional growth prospects this represents.
Higher damages awards will also result in an increase quality of life for those with life changing events outside of their control. As we continue to build higher levels of AUM and drive profitability within the business, we will remain totally focused on supporting clients post settlement for the remainder of their life, delivering excellent customer service and maintaining our 99% client retention rate."
For further information:
Frenkel Topping Group plc Jason Granite, Executive Chairman | www.frenkeltopping.co.uk | |
Richard Fraser, Chief Executive Officer | Tel: 0161 886 8000 | |
Julie Dean, Chief Financial Officer | ||
finnCap Ltd | Tel: 020 7220 0500 | |
Adrian Hargrave / James Thompson / Alex Price (Corporate Finance) | ||
Tony Quirke (Corporate Broking) | ||
Walbrook PR Ltd | Tel: 020 7933 8780 or frenkeltopping@walbrookpr.com | |
Paul McManus | Mob: 07980 541 893 | |
Nick Rome | Mob: 07748 325 236 | |
About Frenkel Topping: www.frenkeltopping.co.uk
Frenkel Topping provides specialist independent financial advice focussed on asset protection for clients. The specialist independent financial adviser has a market leading position providing advice and fund management services for personal injury trusts and clinical negligence awards and is well placed to provide services to a wider customer base.
The Company provides a range of wealth management services including bespoke investment portfolios, financial and tax planning. It is focused on increasing its assets under management by growing the number of fee earners who are qualified to provide benefits protection for a variety of needs as the Company adds to its personal injury and clinical negligence specialism.
It has a national presence with offices in Manchester, Birmingham, Bristol, Cardiff, London and Leeds and has relationships and infrastructure in place to further grow its reach and target markets.