Direct Line error "does not look good" but "doesn't change much"

(Alliance News) - Direct Line Insurance Group PLC's miscalculation of its 2023 Solvency II capital ratio doesn't look good but did enable it to get some good news into the market, an analyst on Friday said.

The London-based insurer said an error has been found in its Solvency II capital ratio for 2023, which means it was lower than previously reported.

The London-based car and home insurer said the mistake arose particularly in the translation of the reinsurance debtors between IFRS and Solvency II own funds, and the error will not have an impact on the IFRS figures.

Amending the error, the company said its year-end solvency capital ratio was revised down to 188% from 197%. It noted this is still above its risk appetite range of 140% to 180%.

Direct Line said it estimates its solvency capital ratio improved to around 200% by June 30, thanks to strong capital generation in the first half of 2024 from a combination of operating earnings, one-off benefits from partnerships, and market movements.

The firm said it had implemented measures to strengthen its control environment where the miscalculation was made.

Matt Britzman, senior equity analyst, Hargreaves Lansdown said errors are "never good", but this "doesn’t change" much.

Indeed, he noted the short update actually gave Direct Line the chance to deliver some positive guidance ahead of half-year results, with capital generation looking positive over the half so far.

But Panmure Liberum analyst Abid Hussain said this "does not look good given this was a big focus and decision criterion in selling the commercial insurance business last year and enacting a quota share reinsurance agreement."

Direct Line is set to report half-year results to June 30 on September 4.

Shares in Direct Line were down 1.7% to 185.80 pence in London on Friday.

By Jeremy Cutler, Alliance News reporter

Comments and questions to newsroom@alliancenews.com

Copyright 2024 Alliance News Ltd. All Rights Reserved.