Direct Line share price falls after Beast from the East costs insurer its entire annual weather budget
Direct Line today counted the cost of Britain’s icy winter and warned its top line had shrunk by five per cent in the first three months of 2018.
Quarterly gross written premiums slumped from £810.3m to £769.9m.
Direct Line operates its own and a host of other well-known brands, including Churchill, Privilege and Green Flag.
“The freezing weather earlier this year hit many drivers, households and businesses hard,” said boss Paul Geddes. The firm estimated the recent “Beast from the East” would cost the firm around £50m after tax.
The insurer was one of the FTSE 100’s biggest fallers, with shares dipping over four per cent.
Home insurance partnerships were the main driver of Direct Line’s top line fall. Gross written premiums plummeted 52 per cent to £47.3m.
Motor insurance grew by 2.9 per cent to £404m, with Direct Line’s own brands rising 0.4 per cent.
“In motor, the premium rises in the first half of 2017 have now largely reversed as customers benefited from last year’s favourable claims environment,” said Geddes.
“On partnerships, Royal Bank of Scotland Home returned to policy growth for the first time since 2012, benefitting from our investment in digital capabilities, and Volkswagen joined our portfolio of Motor partnerships.”
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Annual weather budget
Interactive Investor head of markets Richard Hunter said: “The annual weather budget has effectively now been used, putting the company in a potentially uncomfortable situation.
Even so, growth in its own brand policies was strong, whilst both the combined operating and capital ratios are sound. The company’s cash generation and confidence in prospects has resulted in a punchy dividend yield.
The company is one with a close eye on margins and profits, and the strength of its brands, mostly household names, make it a market leader. Its absence from comparison sites gives Direct Line something of a competitive and strategic advantage.
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