Direct Line share price wobbles after revealing technology revamp impairment
Direct Line shares wobbled this morning after revealing a technology systems overhaul was not going to plan.
The FTSE 100 insurer, which was spun-off from Royal Bank of Scotland in 2012, is spending up to £100m each year on revamping its legacy systems and developing new technology to improve the “customer journey”.
But the value of changes is being reviewed by Direct Line and “this could lead to an impairment charge at year-end somewhat higher than last year’s level”.
The firm declined to comment on how much the impairment would be.
Shares dived almost three per cent in opening trades, before bouncing back and are broadly flat.
RBS has had its own systems issues in recent years, not least with regards to the lender’s up-for-sale Williams & Glyn arm. The complexity of the systems and the ability to transfer them to a third party has been cited as a key reason putting off potential bidders.
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“On track”
Meanwhile, Direct Line revealed “on track” third-quarter results, with gross written premiums up 2.8 per cent to £907.2m.
Premiums from the firm’s largest division, motor, jumped over seven per cent. But its home insurance figures were a key detractor, falling 3.9 per cent. Direct Line earlier this year that “escape of water” costs had leapt. The cost for call-outs had spiralled, meaning claims figures were much higher.
But boss Paul Geddes said Direct Line “the actions we’ve taken on home claims costs have started to take effect”.
He added:
We have continued the good momentum from the first half into the third quarter, and remain on track with our targets. In-force policies grew by a third of a million or 5.1 per cent over the last 12 months in our direct own brands, across Motor, Home, Green Flag and Direct Line for Business, demonstrating the strength of the Direct Line Group business model.
“We have continued to invest in our business and our people with the aim of delivering good value for our customers and good returns for our shareholders. As a result, we expect to achieve a combined operating ratio around the middle of the target range of 93 per cent to 95 per cent for 2017 and we reiterate our medium-term targets.”
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