Direct Line takes £16.9m discount rate hit

By 1st June 2020 Uncategorised No Comments

Insurance giant Direct Line Group suffered a one-off loss of £16.9m from the government’s surprise discount rate decision, accounts have revealed.

The company’s financial report for calendar 2019 show it had to increase reserves after the former lord chancellor David Gauke moved the rate from -0.75% to -0.25% last August. Direct Line, like most insurers, had assumed a rate of 0% and priced accordingly.

The financial hit contributed to a 12.2% fall in overall profit before tax, to £509.7m. Despite this, the chief executive reported a good set of results achieved ‘while navigating a difficult motor market and delivering significant change in the business’.

Direct Line said gross written premium was 0.3% lower than in 2018, but that fails to reflect the changes made during the year. In fact, the second half of 2019 saw premiums increase 2.4% on the first half, and by the final quarter of 2019 they were 4.7% higher than the same period a year before.

Operating profits for the motor business fell from £418.1m in 2018 to £302.6m last year (a figure which includes the discount rate reserves release).

Direct Line said motor claims frequency was lower in 2019, thanks to counter-fraud initiatives and benign weather, although no details were provided. The company expects underlying claims inflation to be between 3% and 5% in the next year.

The new discount rate, which will not be reviewed until 2024, surprised most observers. Following Gauke’s decision, Huw Evans, director general of the Association of British Insurers, said it was a ‘bad outcome’ that would add costs for insurance customers and taxpayers.

 

 

credit the law society gazette

https://www.lawgazette.co.uk/news/direct-line-takes-169m-discount-rate-hit/5103314.article

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