Analysis of the 2019 financial results reveals the ways insurers make profit, and how their revenue streams have changed

The leading personal lines insurers would be making an underwriting loss if it were not for the funds released from prior year reserves.

Insurance Times’s analysis of the 2019 financial results of Admiral, Direct Line Group (DLG) and esure found that the three businesses made an aggregate underwriting loss of £204.7m in 2019, with reserve releases of some £569m moving the insurers into profit-making territory.

The current year underwriting position was, however, an improvement on 2018’s results, when the same three insurers recorded underwriting losses of £272m, releasing £612.5m from reserves.

The three insurers also derived a significant amount of profit from ancillary products and other areas of income, with the group reporting revenues from non-underwriting streams totalling £785.8m, up from £756.5m in 2018.

  AdmiralDLGEsure Total 
 Operating profit £535.2m  £546.9m  £68.0m  £1,150.1m 
 Current year underwriting profit (£84.6m)  (£62.4m)  (£57.7m)  (£204.7m) 
Reserve releases (excl. Ogden rate change)  £260.3m  £294.5m  £14.2m  £569.0m 
Profit commission  £114.9m  N/a  N/a  £114.9m 
Investment income  £35.5m  £134.6m  £22.0m  £192.1m 
Instalment income  £21.7m  £114.0m  N/a  £135.7m 
Other income  £187.4m  £66.2m  £89.5m  £343.1m 


Admiral reported the second-largest operating profits of all the insurers in this analysis, but it also reported the highest current year underwriting loss, which stood at £84.6m for 2019.

The insurer reported profits from non-underwriting avenues of £359.5m for 2019, which accounts for two-thirds of its overall profits. This is up from £310.1m (64%) in 2018, and marks the biggest total of the three insurers.

Of this £359.5m, a total of £114.9m came from profit commission derived from deals in the reinsurance market, while £187.4m was classified as £187.4m, which includes ancillary products.

This marks a 23.3% increase in income derived from profit commission, and a 10.6% increase in income derived from ancillary products and other income streams.

The biggest increase for Admiral, however, was in instalment income, which more than doubled to £21.7m.

In his chief executive’s statement in the insurer’s annual report, David Stevens, who also announced his intention to step down from his role next year, paid homage to Admiral founder Henry Engelhardt and admitted his admiration for his predecessor’s description of Admiral as a freight train.

“A freight train – not racy, not glamorous (who needs a glamorous insurance company); but progressing ever onwards with a relentless, implacable forward momentum,” he said. “That relentless forward momentum has seen us grow, year in year out, over the decade.

“It was a year which saw profits exceed £500 million for the first time, on the back of substantial reserve releases. We crossed the million mark in household policyholders and sold our first household policy beyond the UK.”

Stevens is set to be replaced at Admiral’s helm by Milena Mondini de Focatiis, currently head of UK and European insurance, although Stevens will continue to work as an advisor to the business after he steps down.

Direct Line Group

Direct Line Group (DLG) reported the largest operating profits of the three insurers in this analysis at £546.9m, although this is 9.1% lower than the £601.7m reported for 2018.

The insurer’s shrinking profits come despite its current-year underwriting loss being cut by more than half to £62.4m (2018: £149.3m), and was driven mainly by a reduction in overall reserve releases.

DLG released just £294.5m from prior year reserves in 2019, which, while still the highest in the analysis, was still almost a third less than the £404.4m released from reserves in 2018.

Since former chief executive Paul Geddes announced in 2018 that he was stepping down from his position, reserve releases have been on the decline, but this was not unexpected.

A report from Berenberg, released shortly after Geddes’ announcement, revealed that the investment bank expected reserve releases to “normalise towards 10% of net earned premiums”, and continued to say that “offsetting this headwind with cost and commission savings would be an excellent achievement”.

But speaking to Insurance Times, Andy Broadfield, director of investor relations at DLG, said the declining reserve releases is the result of a wider strategy at the insurer to retain less risk, something he says the insurer has been very open about since breaking away from RBS.

The last 12 months also saw a drop in the insurer’s profits from non-underwriting revenue streams, as profits from these areas fell by 9.2%, making DLG the only insurer in this analysis to see a decline in non-underwriting profits.

Investment income was hardest hit, falling by 12.9% to £134.6m, while instalment income (£114.0m) and other income (£66.2m) fell by 8.2% and 9.2% respectively.

While this may seem like a bad year for the insurer, DLG’s rise in share value after it announced its results tells a different story.

Investors had expected a worse performance, and there were signs for optimism too, with the motor book recording growth in the second half of the year – especially in the final quarter – and claims inflation in the 3-5% guidance range, below that of Hastings. GWP also remained stable.

William Ryder, equity analyst at Hargreaves Lansdown said that Direct Line’s results were “pretty reasonable” and that, while reserve releases were on an ongoing downward trajectory, current year underwriting performance had improved.

”The group paid out a lower proportion of premiums as claims this year, and underlying operating costs also fell,” he said. ”However, results have been flattered in the past by large prior year reserve releases. These have fallen precipitously, and are expected to fall further going forwards, although they will still make a meaningful contribution to profits.

”We think the group faces its share of challenges, but the market is rewarding steady progress.”


Esure reported the lowest operating profits of all the insurers in this analysis at £68m, but this was a big improvement on 2018’s £7.8m.

The insurer was also the only insurer to fall to an underwriting loss after allowing for the impact of prior year reserves, with reserve releases of £14.2m not enough to offset a current year underwriting loss of £57.7m. This was still an improvement on 2018, however, when the insurer reported a current year underwriting loss of £64.2m and had to strengthen prior year reserves with £27.8m of additional funds.

Other income was the insurer’s biggest contribution to overall profit, as profits from this ancillary revenue stream grew by 2.2% to £89.5m.

The biggest increase in profits, however, came from the insurer’s investment income, from which profits grew by 80.3% to £22m.

Despite the insurer’s struggles to find an underwriting profit, new chief executive David McMillan described the results as “pleasing” in his first annual report statement for the insurer, writing that the upturn in trading profitability had also allowed the insurer to reinvest in initiatives aimed at improving key disciplines within the business, as well as improving technological capabilities.

“2019 was a year of delivery and change for esure and it is pleasing to see the business making positive progress after a challenging 2018,” he wrote.

“Trading Profit of £68.0m and in-force policies of 2.38 million are good performances with positive underlying momentum as we move into 2020. A significant proportion of this profit was reinvested in the development of our strategy and initiatives delivering improved performance.”

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