Weather puts a decent dent in Direct Line's profits
Direct Line saw its gross written premiums fall 5% to £1.61bn in the first half, it reported on Wednesday, though excluding Nationwide and Sainsbury’s, they rose 0.5% to £1.6bn.
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The FTSE 100 insurance group said direct own brand premiums were ahead 3.3% at £1.1bn.
Its operating profit sli 15.7% to £303.1m, and its commission ratio was down 2.4 percentage points to 6.5% compared to the same time last year.
The firm’s expense ratio was 0.5 percentage points smaller at 24.4%.
Direct Line said its combined operating ratio rose 4.4 points to 93%, while its profit before tax slid 13.9% to £293.8m.
Its annualised return on tangible equity was 21.8%, down 4.8 percentage points, while the board declared an interim dividend per share of 7p, which was 2.8% higher than the interim distribution declared last year.
The company said that normalised for weather, operating profit was up slightly, also noting that the first half last year included £49m of benefit from revised Ogden reserve releases.
It said the headline decline in operating profit of £56.6m compared to the prior year was driven by higher weather-related claims of £75m in the period just ended, compared to £9m in the first half of last year.
Direct Line said it continued to make “positive progress” with its strategic initiatives, including the launch of two further Direct Line differentiating propositions, the signing of a new motor partnership deal and, in July, reaching more than 500 trades on the Direct Line for Business platform.
It said its programme to deliver “latest generation systems” to benefit both business and customers was on track.
The Direct Line board reiterated its current financial targets for 2018 and over the medium term, of achieving a combined operating ratio in the range of 93% to 95% adjusted for normal weather and assuming no further change to the Ogden discount rate.
It said that would be supported by reductions in expense and commission ratios.
For 2018, the group said it expected total investment return in the region of £150m.
“This is a good set of results - growing our own brand policies and profits normalised for weather in a competitive, albeit to date, rational market - again showing the strength of our business model,” said chief executive officer Paul Geddes.
“We have also made progress on our strategic initiatives which we believe will improve our competitiveness in each of our channels and we are focused on improving our efficiency.
“This strategic agenda, combined with our disciplined value over volume focus, gives us the confidence in our outlook, for us to reiterate our financial targets.”
Geddes also confirmed that he was stepping down as CEO in the summer of 2019.
“I have been privileged to lead the group over a long period of transformation.
“As I approach my 10th anniversary, it is right to put a successor in place to lead the company in the years ahead. In the meantime, we have a very busy and exciting agenda, which I look forward to delivering.”