Insurer Direct Line’s first-half profits rise as pandemic restrictions ease
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Insurer Direct Line has today reported a rise in its earnings for the first half of the year, despite a difficult car insurance market, which its home businesses offset.
The company reported an operating profit of just under £370m for the six months ended June 30, an increase from £265m a year earlier.
Direct Line said it is expecting a combined operating ratio of between 90 – 92 per cent for the whole of 2021, compared with 84.2 per cent in the first half.
The insurer’s first half gross written premiums fell 1.5 per cent year-on-year to £1.6bn of which £1.1bn was for own-brand policies.
Although gross income from premiums in its main car insurance business fell by 6.2 per cent – the result of fewer car sales and new drivers on the road – the insurer said the drop in motor insurance claims caused by lockdowns was starting to reverse.
The board announced an interim dividend of 7.6 pence, up 2.7 per cent while Direct Line shares rose 2.6 per cent in as markets opened today.
Direct Line’s underlying operating profit rose from £264.9m to £369.9m and headline profit rose after tax rose from £192.6m to £203.8m. The difference largely reflects the purchase of the lease at the group’s Bromley offices, higher taxes and higher interest costs.
The “relatively benign weather” has been a helpful driver through the transition period for the insurer, said Hargreaves Lansdown equity analyst William Ryder.
He said: “Assuming the weather cooperates, Direct Line has upgraded its full year profitability guidance.” “However,” he cautioned, “medium term guidance is unchanged as the benefits of unlocking and nice weather can’t be relied upon forever.”
General insurance, according to Ryder, is still a tough market: “Competition is always tough, especially on price comparison websites, and it’s difficult to find a long term edge. While Direct Line is doing a lot of the right things, like investing in technology to improve underwriting efficiency and control costs, competitors are doing the same. Direct Line can boast a strong brand, but whether that will be enough to drive sustained outperformance remains to be seen.”