Interactive Investor

ii view: Direct Line details Q1 premiums growth

Investors in this UK insurer have had a tough time over recent years but are things about to change under a new management team? We assess prospects.

8th May 2024 10:08

by Keith Bowman from interactive investor

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First-quarter trading update to 31 March 

  • Premiums and fees for the ongoing business up 15% to £706.8 million

Guidance:

  • Continuing to target at least £100 million of annualised cost savings by the end of 2025 

Chief executive Adam Winslow said: 

“We have seen a positive start to 2024 trading, with double digit gross written premium growth in our Motor, Home and Commercial businesses. Claims trends and Motor margins continue to develop in line with our expectations.

"We have announced a number of significant hires over the last few weeks. I am confident that with the new leadership team in place, we can deliver run-rate annualised cost savings of at least £100 million by the end of 2025 and a net insurance margin, normalised for weather, of 13% in 2026.”

ii round-up:

Insurer Direct Line Insurance Group (LSE:DLG) today detailed growth in quarterly premiums as it pursues a refreshed strategy under relatively new chief executive Adam Winslow.

First-quarter premiums and associated fees to the end of March for ongoing operations rose 15% to £706.8 million year-over-year, largely fuelled by an 18.3% rise at its core motoring category to £424.3 million. 

Shares in the FTSE 250 company fell 2% in UK trading having come into this latest news up around 15% over the last year. That’s similar to fellow insurer Beazley (LSE:BEZ) although behind a near one-quarter increase for rival Admiral Group (LSE:ADM). The FTSE 250 index itself is up 6% over that time. 

As well as Direct Line itself, other group brands include Churchill, Darwin, Green Flag and Privilege. Premiums at its home content and buildings category climbed 14.2% from a year ago to £147.3 million, although bad weather had led to around £33 million of weather claims. 

Elsewhere, commercial own brand premiums rose 14.9% to £71.7 million, with Green Flag roadside rescue premiums up 4.6% to £20.3 million. Total group premiums, including the brokered commercial business which is now sold, rose 10.7% to £892.2 million

A further outlining of its strategy including that related to its dividend policy is expected to be provided at a Capital Markets Day on 10 July. 

ii view:

Direct Line was started in 1985, bought by Royal Bank of Scotland in 1988 and then separated back out and floated on the UK stock market in late 2012. The recent sale of its commercial brokered insurance business has left it fully focused on retail personal lines and commercial small business customers.

For investors, a near 40% drop in the insurer’s share price over the last five years offers clear room for improvement. The FTSE 250 insurer lacks the overseas exposure of FTSE 100 rival Admiral. Climate change is arguably making the weather evermore unpredictable, while rival insurance providers such as Aviva (LSE:AV.) also offer business diversity given their exposure to other arenas such as savings. 

More favourably, previous moves to fend off a takeover from Belgian insurer Ageas included plans to realise £100 million of annualised cost savings to the end of 2025. Chief executive Adam Winslow has been busy strengthening his management team, the dividend payment was previously reinstated, while any further stumbles by Direct Line could see it back in the takeover spotlight. 

New management, an evolving strategy refresh and hopes for growth in the dividend payment all look to generate grounds for cautious optimism here, although share price reaction today suggests investors may need more convincing. 

Positives: 

  • Strong brand names
  • Restarted dividend payment   

Negatives:

  • Factors outside of its control such as the weather influence performance
  • Competition not standing still

The average rating of stock market analysts:

Buy

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