Following a predicted profit hit last year, however, DLG’s exiting boss believes the business will bounce back

Direct Line Group’s (DLG) chief executive’s decision to step down and the firm’s strategic decision to boost its solvency capital ratio by around 6% reflect the challenges faced by all UK insurers, explained new research from Bloomberg Intelligence (BI) published yesterday (30 January 2023).

According to’s latest Car Insurance Price Index (January 2023), average car insurance premiums rose by 19% to £629 in 2022 – with claims inflation reportedly averaging 5% a year since Q4 2019.

Furthermore, Market researcher Consumer Intelligence said that average motor insurance premiums rose 17.4% to £877 in 2022.

BI senior industry analyst for insurance Kevin Ryan explained that these conditions meant “Direct Line [was] confronting an increasingly challenging operating environment”.

He further noted that additional pressures facing insurers included the FCA’s price walking regulations “crimping flexibility, while reducing the size of the new-business market” and that “volatile investment markets may restrict returns”.

Ryan, therefore, warned that “earnings and dividend growth look unlikely for 2022”, adding that there was “no reason to believe” that conditions in 2023 would be “any less hostile”.

A source close to Penny James – who stepped down as DLG chief executive and director last week (27 January 2022) – told Insurance Times that her decision to exit had been made mutually, with her tenure having been hit by exceptional challenges. 

They explained that, like other general insurers, Direct Line had been buffeted by a “perfect storm” of factors in H2 2022 outside management control that exacerbated inflationary pressures seen in the motor market, for example. 

DLG ‘bounce back’

Direct Line Group, established in 1985 by Sir Peter Wood, offers a range of personal and commercial lines products – including car, home and small business insurance.

The deparutre of James, who was promoted to her former position from her previous role as chief financial officer in May 2019, followed DLG predicting a profit drop for H1 2022 in July 2022.

In its Half Year Report 2022 (August 2022), DLG’s solvency ratio following the paying of dividends was 152% – sitting in its risk appetite range of 140% to 180%.

To recover ground, DLG then sold £670m of US dollar investment grade bonds, which incurred a realised loss of £19m – achieving an estimated 33% reduction in its sensitivity to credit spends and around a 6% increase in its solvency capital ratio.

The source close to James explained that James’ leadership had left DLG better placed to weather economic pressures than it was at the beginning of her tenure.

They added that James was confident that DLG’s position would improve and that a plan was being enacted at the firm to continue down the path that James had set. 

The insurer’s underwriter UK Insurance recently entered a strategic reinsurance agreement, that came into effect from 1 January 2023 and comprised a two-year structured 10% quota share arrangement.