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Aviva will take a £385m hit to its profits because of changes to personal injury compensation rules that were announced yesterday.

The insurer said on Tuesday that it would take the hit as an exceptional charge to its 2016 results, due to be announced next week. It added that it would not affect operating profits or the dividend policy.

The government on Monday announced a change to the way compensation payments are calculated. The change will result in much higher lump sum payments to accident victims. Insurers are warning that car insurance prices are likely to rise sharply in response.

The hit to Aviva’s profits is higher than those announced by rivals Direct Line and Admiral on Monday, largely because of its market share in the motor and commercial liability markets.

The company’s shares, which had been flat on Tuesday, dropped 1.4 per cent after the announcement.

Greig Paterson, analyst at Keefe, Bruyette & Woods, said the impact on Aviva’s profits was higher than he expected, suggesting that: “Aviva has greater exposure to higher risk categories than we had previously believed.”

Top executives from the insurance sector are due to meet chancellor Philip Hammond later on Tuesday to discuss the change.

Huw Evans, director general of the Association of British Insurers, said:

The Chancellor will today hear just how concerned insurers are about the way this change will hit their customers. It makes no sense to do something that will cost motorists, businesses and taxpayers so much at such a difficult time based on a broken formula. It is not too late for the Government to deliver a fairer deal for consumers and claimants and it should commit to urgent reform of the law before this crazy decision becomes a reality.

Copyright The Financial Times Limited 2017. All rights reserved.
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