Hampsons Insurance Industry Update No. 2

In a judgment delivered on 20 June 2025 in Petrona Gordon v. Attorney General of the Caymans Islands [2025] CIGC (Civ) 22, Justice Marlene Carter of the Cayman Islands Grand Court, with the benefit of expert evidence, carefully considered and effectively adjusted and re-set the personal injury discount rate to be applied to claims for future pecuniary loss and damages in the Cayman Islands from +2.5%, which rate had prevailed in the Cayman Islands since 2011, to +1.0%.

In this update, we consider what this adjustment to the personal injury discount rate means for liability insurers in the Cayman Islands.

Background to the personal injury discount rate

In this context the personal injury discount rate is the interest rate used by the courts in calculating the present value of future financial losses sustained in personal injury claims. It recognizes and adjusts for the expected net return on investments (i.e. net of inflation) that a claimant might achieve on a lump sum awarded by way of compensation for that claimant’s future loss of income or other future damages. In fixing a discount rate, the intention is to strike a balance between the risk of over-compensating a claimant, against the risk of under compensating that claimant. A lower discount rate, i.e. lower expected returns on the notional investment, requires a greater lump sum be awarded to the claimant in order to meet those future pecuniary claims. Conversely a higher discount rate, i.e. increased returns on the notional investment, requires a lesser lump sum to meet those future damages claims.

The personal injury discount rate is then typically used in conjunction with the Ogden (actuarial) Tables, which take into account the claimant’s mortality, i.e. his or her actuarial risk of death during the period for which the future loss is claimed, to obtain a multiplier which then permits the calculation of a lump sum reflecting the present value of the claimant’s future loss.

The personal injury discount rate therefore has a direct impact on the assessment of claims for future loss and damages and if the discount rate is reduced, the insurer funding the settlement is required to advance a greater lump sum in order to meet the claim for future loss.

In the UK under the Damages Act 1996 the personal injury discount rate is pegged to the anticipated return on investments in low-risk UK government bonds (Index-Linked Gilts) and is reviewed by the Lord Chancellor every five years. That rate, initially fixed at +2.5% in 2001, has been adjusted periodically, to -0.75% in 2017, to -0.25% in 2019 and, most recently increased to +0.5% effective 11 January 2025.

In the Cayman Islands the personal injury discount rate is a matter for determination by the courts. It was effectively fixed by the Grand Court at +2.5% in 2011 in Wilson v. Ebanks [2011] (1) CILR 447. Since that date, while the discount rate has been referenced on a number of occasions, the Cayman courts not had occasion to review the position substantively with the benefit of expert evidence. See Chin v. Yates [2014] (2) CILR 196, AX v. A, B and C (Swift, Ag. J., unreported 9 June 2017), and McDow v. Dolphin Discovery, (Walters, Ag J., unreported 7 July 2022). The decision of Judge Carter in Gordon v. Attorney General accordingly represents the first substantive review of the personal injury discount rate by the Cayman courts in some 14 years.

Petrona Gordon v. Attorney General of the Caymans Islands

In Gordon v. Attorney General the Plaintiff advocated for a discount rate of +1.0% noting that this was the current rate of return in the UK on Index-Linked Gilts, supported by expert evidence. The Defendant’s expert proposed a discount rate of +3.0% drawing on rates generated by the return on the Cayman Islands Public Service Pension Plan’s (“PSPP”) investments. Judge Carter distinguished the long term investment position of the PSPP from that of the short term investment options available to the Plaintiff, and influenced by rates in other jurisdictions (the UK -0.25%, the Isle of Man +1.0%, Scotland and Northern Ireland +0.5%) Judge Carter initially considered in the Court’s draft judgment circulated on 10 January 2025 that a discount rate of +1.25% was appropriate.

On 2 December 2024 the Lord Chancellor in the UK determined that the discount rate in the UK would change from -0.25% to +0.5%. In light of this development Judge Carter entertained further submissions from both parties. She noted that the UK discount rate of +0.5% reflected a change in the approach to the calculation, based now on “an overall assessment of several core claimant types from within a range of modelled claimants”. On this basis she declined to follow the new UK discount rate and drawing on the evidence of the Plaintiff’s expert held that a discount rate of +1.0% was appropriate.

The effect of this decision

The decision of Judge Carter in Gordon v. Attorney General applying a discount rate of +1.0% appears well reasoned and reflects the general and. growing recognition that the previous rate of +2.5% was unduly optimistic having regard to the net return on investments in recent years. It is consistent with the rate applied in the Isle of Man, and not far off the +0.5% currently rate applied in the UK. While this decision is not binding on the Grand Court should the discount rate be reviewed in other Grand Court cases including on different underlying facts, it seems likely that this decision will be followed and a discount rate of +1.0% applied generally by parties and the Grand Court in the foreseeable future.

What does a discount rate of +1.0% mean for liability insurers

To examine the practical effect of the reduction in the personal injury discount rate from +2.5% to +1.0% on Cayman Island liability insurers it is helpful to look at some examples, using these discount rates in conjunction with the most recent iteration of the Ogden Tables, i.e. the 8th Edition (2020).

Take the example of a man aged 45 at the date of trial, with a modest income of $50,000 p.a., disabled from employment to retirement at age 65. Using Ogden Table 9, with a discount rate of +2.5% (i.e. pre-Gordon v. Attorney General) the multiplier generated by Ogden Table 9 is 15.33 and the presentday value of his future loss of income is calculated as follows:

15.33 x $50,000 = $766,500

By contrast using the discount rate of +1.0%, following Gordon v. Attorney General, the Ogden Table 9 multiplier is now 17.58 such that the present-day value of his future loss of income to retirement age is calculated as follows:

17.58 x $50,000 = $879,000

Accordingly the reduction of the discount rate from +2.5% to +1.0% results in a net increase in the funding required for the loss of income claim of $112,500, or just under 15% over what it would have been formerly under a +2.5% discount rate.

On the same facts but assuming the claimant is a woman and using Ogden Table 10 (applicable to women) the application of the +1.0% discount rate yields a net increase in the present-day value of her future loss of income of just over 18% compared to that formerly under a +2.5% discount rate.

It can be seen that the adjustment of the personal injury discount rate from +2.5% to +1.0% following Gordon v. Attorney General, is likely to increase the exposure of liability insurers in cases of injury involving future pecuniary loss, i.e. loss of income, future medical expenses etc., and is something insurers and their underwriting departments may wish to consider going forward.