Periodical payment order (PPO)
An annuity a UK court can order instead of a lump sum for the future losses of a serious injury, indexed on retail prices by default and, for care, usually on care workers' earnings since 2008: the motor insurer inherits a lifetime liability.
Thompstone v Tameside and Glossop Acute Services NHS Trust, Court of Appeal, January 2008: the court upheld indexing a care annuity on ASHE 6115 instead of the retail price index that applies by default. That index is the ONS annual survey series on the earnings of care assistants and home carers. Since the Courts Act 2003, in force from April 2005, an English court can order that all or part of the award for future losses be paid as an annuity, even without the parties' consent. Continuity of payment must be secure, which is deemed to be the case for an insurer covered by the FSCS. The claimant no longer risks outliving the lump sum and escapes the bet on the Ogden rate. The motor insurer sees a claim it would have closed with a check turn into a lifetime annuity indexed on wages that long rose faster than prices. It needs a mortality basis adjusted to a health condition annuitant tables ignore, an assumption for the gap between ASHE and the discount rate, and a reserve open for forty or fifty years. Solvency II classes these annuities stemming from non-life contracts among obligations treated as life, with their longevity and revision shocks. In reinsurance, the motor XL stability clause applies payment by payment, and the retention is only pierced over the years. Many treaties provide for capitalizing the annuity at an agreed date or on an agreed basis to fix the reinsurer's share. That basis is among the most disputed points of a UK motor renewal. PPO frequency has moved with the Ogden rate, a low rate making the lump sum more attractive to the claimant. Not to be confused with the capitalization table, which performs the opposite operation, from annuity to lump sum.
Constructed example: a care annuity of 150,000 pounds a year for a twenty-five-year-old claimant given a fifty-year life expectancy, the term treated as certain for simplicity. If ASHE grows at the nominal discount rate, the real rate is zero: 50 × 150,000 = 7.5 million pounds. If ASHE outruns that rate by one point a year, the real rate drops to -1% and the multiplier to 65.29. The reserve rises to 9.79 million, 2.29 million more without a single payment having changed.
PPO, periodical payment orders, periodical payments, ASHE 6115 indexation, PPO reserving
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