Direct Line lowers key capital ratio after miscalculation, shares drop
Adds additional detail in paragraph 3, updates shares in paragraph 8
By Aby Jose Koilparambil and Iain Withers
LONDON, Aug 23 (Reuters) -Direct Line DLGD.L lowered a key gauge of its financial strength on Friday citing a previous miscalculation, sending shares in the British home and motor insurer down as much as 3%.
Direct Line said its solvency capital ratio had been recalculated as 188% for the end of last year. The company had previously reported it as 197%.
The error was uncovered by an independent review carried out by accountancy firm Deloitte and commissioned by CEO Adam Winslow after he joined the company in March, a spokesperson for the company said.
Direct Line said it had taken action to strengthen its controls after spotting the miscalculation.
The Bank of England, which regulates financial services firms' capital management, declined to comment on individual company matters.
A lower solvency ratio can limit the amount of surplus capital an insurer has to return to shareholders through share buybacks or dividends.
Direct Line nonetheless said it expected its solvency ratio to increase to around 200% at the end of its half-year period to June 30, citing strong capital generation from operating earnings and one-off benefits from partnerships.
Direct Line's shares were last down 2.2% at 1320 GMT and remained one of the biggest percentage losers on the FTSE 250 .FTMC index.
The insurer has been trying to restore the confidence of investors under CEO Winslow after a period of sluggish performance. The company fended off a takeover bid by Belgian insurer Ageas earlier this year.
The solvency capital ratio is used to assess how well an insurance company can cover short-term and long-term outstanding financial obligations.
The company said the recalculated solvency ratio remained above the group's target range of 140-180%.
The company is scheduled to report half-year results for the period to end-June on Sept. 4.
Reporting by Aby Jose Koilparambil in Bengaluru and Iain Withers in London; Editing by Rashmi Aich, Janane Venkatraman, Jane Merriman and Tomasz Janowski
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