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Direct Line has admitted to an accounting error that led the UK motor insurer to overstate a key regulatory measure of the group’s financial strength.
The FTSE 250 insurer said on Friday that the 197 per cent solvency ratio it reported in its annual report in March was too high because of “a miscalculation”.
The ratio — its capital as a percentage of the regulatory minimum — was actually 188 per cent at the end of last year.
“The group has taken action to strengthen the control environment in relation to the specific area where the miscalculation occurred,” Direct Line said in a statement.
The company added that it had notified UK regulators of the error. The Bank of England’s Prudential Regulation Authority, which oversees the UK’s largest insurers, declined to comment on individual company matters.
Direct Line’s shares were trading down nearly 2 per cent, at 185.4p, in afternoon trading in London.
Chief executive Adam Winslow, who joined the group in March, is trying to improve the insurer’s fortunes after it fought off a £3.1bn takeover attempt by Belgian rival Ageas earlier this year.
The company has said its motor insurance operation has “turned the corner” after a difficult period marked by an increase in claim costs following the Covid-19 pandemic, a series of profit warnings and the departure of its chief executive.
Direct Line said the reporting error was discovered by an independent review of its financial controls commissioned by Winslow when he took over as chief executive.
Deloitte, Direct Line’s auditor, declined to comment.
Direct Line’s solvency ratio, which reflects an insurer’s ability to withstand unexpected shocks from higher liabilities or falling asset values, improved over the first half of the year to around 200 per cent by the end of June, the company said, following “good capital generation in the first half from a combination of operating earnings, one-off benefits from partnerships, and market movements”.
The figure exceeds the company’s target range of 140 to 180 per cent.