Over 50s insurance and holiday firm Saga has said it will take a £4 million hit on its profits as a result to changes to the way the Government will calculate insurance payouts.

However, the Folkestone-based company reassured investors its “prudent approach to reserving” meant it had plenty of capital to deal with the change.

On Monday, Justice Secretary Liz Truss announced new calculations to the way personal-injury compensation payouts are calculated.

The decision to move the Ogden Rate from 2.5% to -0.75% was branded “crazy” by Huw Evans, director general of the Association of British Insurers, as it will mean insurers pay higher payouts and will be forced to raise premiums.

A £1,000 payout would have led to a £975 payout under the old rule but under the new calculation insurers would pay out £1,007.50, making a significant impact on larger claims.

Many insurers suffered a fall in their share prices yesterday, although Saga shares were up 1.13% in early trading today.

It said it is protected by the older demographic of its policy holders, which generally make fewer large injury claims.

In a statement to investors the company said: “Given the size of the rate change, there will be a one-off, pre-tax impact on profit of £4 million on the group’s results for the year ended January 31, 2017.

“This will not impact the board’s deliberations regarding the proposed final dividend recommendation and the group remains well capitalised.

“Saga’s older demographic provides the group with a defensive advantage, with lower claims frequency generating less exposure to large and small bodily injury claims, and to periodic payment orders.”