7th Sep 2023 12:04
(Alliance News) - News of improving motor margins and a major disposal gave Direct Line Insurance Group PLC a boost on Thursday, with investors hopeful the Bromley-based firm is on an upward trajectory after a rocky start to the year.
The motor and home insurer said gross written premiums and associated fees in the first half grew 9.8% year-on-year to GBP1.62 billion from GBP1.47 billion.
However, its pretax loss widened to GBP76.3 million from GBP11.1 million, as a reduction in operating profit was partially offset by valuation movements on its investments.
It proposed no dividend payment, having paid out 7.6p the prior year.
It said it aims to restart dividends once two conditions are met: firstly, when capital coverage improves to the upper end of its agreed range, and secondly, when it returns to organic capital generation in Motor.
Looking ahead, it warned of the continuing adverse effects on operating profit from the earn through of previously written Motor business in 2023, but said improved motor margins should help support operating profit improvement in 2024.
"Today could just mark a pivot point as the cycle looks like it might finally be turning, with price hikes catching up to claims inflation. Average renewal premiums are running 25% higher, meaning Motor insurance written now is back at profitable levels," said Matt Britzman, equity analyst at Hargreaves Lansdown.
"That will not be a pretty sight for drivers, with financial pressures mounting from all angles. Direct Line has lost some customers, likely due to shopping around for better deals, but prices across the market are rising rapidly, so there's not much let-up wherever they turn," he considered.
Direct Line also announced the sale of its brokered commercial insurance business to RSA Insurance, a subsidiary of Intact Financial Corp.
The disposal comes at a GBP520 million initial consideration, with a potential further consideration of up to GBP30 million. It also estimates a capital release of up to GBP270 million.
The sale will allow the firm to "focus on retail, personal and direct small business commercial lines, restore the resilience of its capital position and drive the long-term value potential for its customers and shareholders", it said.
HL's Britzman said the sale will free up some capital, but investors shouldn't expect the dividend to return until Motor insurance is back to a state of consistent profit.
Direct Line Insurance shares surged 16% to 174.35 pence each on late Thursday morning in London, but remain down 24% since the start of 2023.
Overall, Thursday's update and the market's response indicate there is "light at the end of the tunnel" for the FTSE 250 listing, Britzman said.
"It's been tough in recent periods; claims numbers have been running high, while cost inflation means underwriting profitability has been under serious pressure. Add headlines and charges around overcharging customers, and here lies a business that seriously needed some good news," he mused.
The group will also be under new leadership from the first quarter of next year, as former Aviva PLC's UK boss Adam Winslow takes over the role of chief executive officer. He succeeds interim CEO Jon Greenwood.
Penny James stepped down suddenly as Direct Line CEO in January, after Direct Line said wouldn't pay a final dividend for 2022 due to a big increase in weather-related claims that pushed it into a loss on underwriting. Chief Commercial Officer Greenwood was appointed as acting CEO.
By Elizabeth Winter, Alliance News senior markets reporter
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