ii view: Hard work for high-yielding Direct Line

Insurer Direct Line is battling a competitive motor market with technology and cost cuts.

Half-year results

• Gross written premiums fell by 2.2% to £1.57 billion
• Operating profit fell by 10.2% to £274.3 million
• Interim dividend up 2.9% to 7.2p per share

Penny James, CFO and CEO-designate said:

"We have delivered a good financial performance overall, benefitting from the breadth and diversity of our business. We have maintained our underwriting discipline in a highly competitive motor market and we delivered a strong result in Home, Commercial and Rescue."

ii round-up:

Direct Line Insurance (LSE:DLG) is a multi-product and multi-channel insurance company. Motor insurance generates the lion's share of its revenues (52% in 2018), followed by home, commercial and then breakdown and other such as cover for vet fees. 

Brands include Direct Line, Churchill and Green Flag.  

The insurer delivered broadly in-line half-year results. Gross written premiums fell by 2.2%, and a reduction in Motor was partially offset by growth in Rescue and Commercial. Home insurance was stable. 

A technology transformation programme is underway, while management continue to bear down on costs - operating expenses of £363 million were £16.1 million lower than last year. 

The share price retreated by just over 1% in mid-afternoon UK stock market trading. 

ii view:

The group's brand name remains high profile. It does not offer its products on comparison websites, so must remain in the public eye. Its markets, particularly its biggest, motor insurance, continue to prove highly competitive. German insurer Allianz SE (XETRA:ALV) has earlier this year added to its UK insurance operations. 

Management is attempting to keep a tight rein on costs. The group is on track to achieve a 2019 operating expenses target of less than £700 million and its target to achieve a 93-95% combined operating ratio in 2019 and over the medium term was reiterated at these results. 

From an investor angle, the prospective dividend yield at over 8% is clearly attractive, although dividend cover could be better. Furthermore, earnings are currently forecast on a downward trajectory. For now, a wait and see approach may prove appropriate. 

Positives: 

• Diverse product offering 
• A prospective dividend yield of over 8% 

Negatives:

• Car insurance market highly competitive
• Factors outside its control such as the weather influence performance

The average rating of stock market analysts:

Strong hold