A reduction in reserve releases and a challenging first half of the year hits the business

Lower reserve releases saw Direct Line Group’s underwriting profit fall last year compared to 2018, the company said in its preliminary results released today.

This figure fell to £232.1m in 2019 compared to £259m the year before.

The group’s combined operating ratio (COR) deteriorated slightly to 92.2% (93.5% when normalised for weather and the Ogden discount rate adjustment), compared with 91.6% the year before.

Total operating profit fell to £546.9m from £606.4m in 2018.


Profit from motor saw a large decline from an operating profit of £418m in 2018 to £302.6m last year, as the group reported a “challenging” first half of the year.

The motor COR slipped to 94.8% from 88.6% the previous year, including a £15.9m hit from the Ogden discount adjustment.

In-force motor policies reduced as the company sought to preserve margins.

DLG said it saw growth in the second half of 2019 with gross written premium (GWP) increasing by 2.9% compared to the same period of 2018. This was up 4.7% in the fourth quarter.

Claims inflation was running at between 3-5% last year, which the insurer said was consistent with expectations. It predicts this level of inflation to continue this year. 

Claims frequency fell last year because of fewer weather-related claims, an improvement in the risk mix and a series of counter-fraud initiatives, the company said.

Home and commercial

Home saw operating profit rise from £83.9m to £150.6m in 2019, and also demonstrated a significant improvement in COR to 86.9%. This resulted from a clamp-down on escape of water events and lower weather losses, DLG said.

The group’s commercial segment saw a slight fall in operating profit and a static COR of 95.7%. 

Coronavirus and storms

The recent Atlantic storms, which caused significant flood and wind damage to hundreds of properties, cost the insurer £35m, net of Flood Re recoveries.

This compares to an annual expected cost from weather damage of £64m, DLG said.

The coronavirus outbreak “has the potential to impact” the group’s 2020 travel business results, it said. 

”We have travel reinsurance protection to mitigate the cost of an event over a 28 day period to £1 million up to a limit of £10 million. The full coverage, if utilised, can be reinstated once on the same terms. Currently, incurred claims are around £1 million”, it said.

”Like all businesses, we are subject to the consequences of disruption to financial markets and global supply chains which, over time, could impact the performance of our investments and the cost and speed of fulfilling customers’ claims.”


DLG has been seeking to transform the business digitally.

Last week, the group announced it was cutting 800 jobs by 2022 as it seeks to cut expenditure and move towards digital interaction with customers.

It said the new technology ”is beginning to land and although there is still much to do in this ambitious and complex programme, we are now moving into the second phase: our business transformation.

”From this phase, we plan to improve our cost position by reducing double run-costs and improving efficiency.

”We also aim to further increase the accuracy and speed of our pricing and underwriting; improve our competitiveness and responsiveness to change; and enhance our customer experience.

Group chief executive Penny James said the business had ”delivered a good set of results, and continued to improve the quality, while navigating a difficult motor market and delivering significant change in the business.

”Our cost reductions and model of disciplined underwriting helped maintain a combined operating ratio of 92.2%, supported by all our product lines. 

“The motor insurance market began to show signs of improvement in the second half of 2019, helping us return to growth while our other major markets were competitive, with pricing largely keeping pace with inflationary cost pressures,” James added.