Direct Line fined £10.6m for solvency miscalculation

The regulator stated UK Insurance Limited, Direct Line’s regulated underwriting entity, overstated its solvency position to the PRA and to the market as a result of the error.

Solvency II is the UK and European regulatory regime that requires insurers to hold enough capital to withstand significant financial stress and meet policyholder claims. 

Firms must calculate and report detailed balance sheet and capital figures to regulators, demonstrating that they hold sufficient funds relative to the risks they insure.

DLG and Aviva’s proactive engagement with the PRA, via the early account scheme, shows how enforcement action can be more efficient when firms are open, candid and accept responsibility for failings at an early stage.

Sam Woods, PRA

Accurate reporting is critical because supervisors rely on these figures to monitor insurers’ financial strength and intervene if solvency deteriorates.

According to the PRA, the miscalculation arose due to ineffective preventative and detective controls, as well as resourcing issues in the finance and actuarial functions.

The issue went undetected by Direct Line Group’s internal control framework for a significant period.

After identifying the problem, the insurer issued a regulatory news service announcement acknowledging the miscalculation and correcting the reported solvency figures.

Senior management notified the PRA without delay, conducted investigations to identify the root cause, and took steps to remediate the issue.

Fine reduced

Because Direct Line disclosed the issue and worked with the regulator to resolve it, the company qualified for a 50% reduction in the financial penalty.

Without that cooperation, the PRA said the fine would have been £21.25m.

The case is also notable because it is the first enforcement action in which the PRA has used its “early account scheme”, which allows firms that quickly admit failures and cooperate with regulators to receive reduced penalties.

Sam Woods, chief executive of the PRA, said: “We rely on accurate and reliable data from firms in order to be able to supervise them effectively. This penalty reflects the importance of firms getting their prudential reporting right.

“DLG and Aviva’s proactive engagement with the PRA, via the early account scheme, shows how enforcement action can be more efficient when firms are open, candid and accept responsibility for failings at an early stage.”

Leadership changes

The shortfall was identified after Adam Winslow became chief executive of Direct Line Group in 2024. 

Winslow replaced Direct Line CEO Penny James, who stepped down at the start of 2023, just two-and-a-half weeks after the insurer’s share prices crashed. 

The exit of James came after she told investors that Direct Line “no longer expects to declare a final dividend for 2022” due to a significant increase in claims because of the prolonged period of severe cold weather in December. 

When Winslow, previously chief executive of UK and Ireland general insurance at Aviva, took the helm of Direct Line he brought in several former Aviva colleagues, including finance director Jane Poole, to overhaul the insurer’s operations.

Both Winslow and Poole later left the business after navigating takeover interest from Ageas and subsequently Aviva itself.

In 2025, Aviva completed its £3.7bn acquisition of Direct Line, leading to further leadership changes. 

Owen Morris was appointed chief executive of Aviva’s UK personal lines business as the integration progressed.