2nd Aug 2016 09:01
LONDON (Alliance News) - Direct Line Insurance Group PLC shares rose Tuesday after the home and motor insurer's interim results outpaced market expectations and as it declared a special dividend despite a dip in pretax profit.
Direct Line reported operating profit for the half-year to the end of June of GBP323.6 million, a huge beat against company-compiled consensus of GBP263.0 million. The operating profit was 3.6% lower year-on-year, due to lower investment income, which declined to GBP92.7 million from GBP111.5 million a year before.
The blue-chip firm also declared a special dividend of 10.0 pence per share, in addition to an interim dividend of 4.9p per share, up from 4.6p a year before. According to Shore Capital, the special payout was ahead of the 6.0p expected.
Direct Line said it was well-prepared ahead of the UK's referendum on European Union membership, and the immediate volatility which followed the vote was actively managed, with no operational impact felt by the business.
Shares in Direct Line were up 7.4% to 381.20p on Tuesday morning, the best performer in the FTSE 100 index.
Pretax profit for the six months to June 30 was GBP298.5 million, down from GBP315.0 million a year earlier. Direct Line said insurance claims recoverable from reinsurers produced a GBP29.4 million loss in the first half, compared to a GBP73.0 million gain a year earlier.
Direct Line said is combined operating ratio, a measure of underwriting profitability, increased 0.2 percentage point in the first half to 89.6%. It maintained a combined operating ratio forecast for the full year of 93% of 95% in its continuing operations, assuming normal weather in the second half. A ratio of less than 100% indicates profitable underwriting.
If current trends continue, Direct Line said the ratio is likely to be at the lower end of this range.
Gross written premiums in the first half grew 3.9% year-on-year in the half to GBP1.61 billion from GBP1.55 billion, driven by premium rates rising 9.5%. Motor policies in-force grew in the first half, but this was partially offset by a decline in Home insurance partnerships.
Direct Line said its own-brand in-force policies increased 3.0% across Home and Motor in the first half, helped by enhancements made to its Direct Line and Churchill brands, plus growth for its Green Flag roadside assistance unit and commercial direct business.
Total in-force policies in the half were down 2.7% to 15,736, primarily due to partner volumes in its Rescue insurance business and other personal lines declines.
"I am pleased with our results over the first half of 2016, as we delivered an excellent performance against a very strong comparator from the previous year," said Paul Geddes, Direct Line's chief executive.
"Although there remains a range of uncertainties in the macro-economic environment, we gain confidence from the strength of this performance, the transformation of the business and the approval of our partial internal model," he added.
By Sam Unsted; [email protected]; @SamUAtAlliance
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