1st Mar 2016 10:08
LONDON (Alliance News) - Direct Line Insurance Group PLC on Tuesday lifted its total annual dividend and reported an increase in pretax profit in 2015, helped by higher-than-expected reserve releases.
Pretax profit rose to GBP507.5 million in 2015, up from GBP456.8 million the prior year, ahead of analyst expectations of GBP451.0 million, thanks to lower restructuring and other one-off costs, and better operating profits from its run-off segment and ongoing operations.
Operating profit from continuing operations improved to GBP520.7 million from GBP506.0 million, primarily due to an improved underwriting performance, which more than offset weaker investment returns.
Higher-than-expected reserve releases, which relate to the money an insurer has to meet claims, contributed as its underwriting profit rose to GBP175.2 million in 2015 from GBP148.1 million in 2014. Reserve releases fell to GBP378.9 million from GBP397.6 million.
Investment returns fell to GBP194.7 million from GBP210.6 million, as a result of lower assets under management and a reduction in realised gains on disposals of fixed income debt securities and a small decrease in unrealised property gains.
The motor and home insurer lifted its total dividend for 2015 to 50.1 pence per share, which included a previously declared 27.5p special payment following the sale of its international operations, up from 27.2p the prior year. Analysts had expected a 48.4p dividend.
"Growth in own brands policies has contributed to overall premium growth and, alongside lower costs, has again allowed us to deliver an improved financial performance for the year. Operating profits are up and return on tangible equity is well ahead of our target, despite the bad weather at the end of the year. We've also continued to grow regular dividends and announced another special dividend," Chief Executive Officer Paul Geddes said.
The insurer said it aims to cut total costs in absolute terms in 2016, though the rate of reduction is expected to be lower than in 2015. Total costs for ongoing operations fell by 4.6% to GBP884.7 million in 2015.
Direct Line guided for a combined operating ratio - a measure of underwriting profitability - in the range of 93% to 95% for ongoing operations in 2016, assuming a "normal" level of claims from bad weather. In 2015, the ratio fell to 94.0% from 95.0%, an improvement given that a percentage below 100% indicates underwriting profitability.
Meanwhile, Direct Line said it is in talks for a three-year extension to its home insurance partnership with Royal Bank of Scotland Group PLC's RBS and NatWest brands, following the loss of deals with lender Nationwide Building Society and supermarket J Sainsbury PLC. From the early months of 2017, Direct Line will no longer underwrite home insurance for Nationwide. It will cease writing new business for Sainsbury's from February that year.
"Whilst these developments are disappointing, it is the nature of the partnership market that relationships will be reviewed periodically, and in the case of Sainsbury's it is reviewing its current insurance operating arrangements. In 2015, NBS and Sainsbury's accounted for 25.5% of Home's gross written premium while Sainsbury's accounted for 3.5% of Motor's gross written premium, albeit they contributed a considerably lower proportion of profit," Direct Line said.
Shares in Direct Line were up 3.2% at 401.00 pence on Tuesday morning.
By Samuel Agini; [email protected]; @samuelagini
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