Insurance heavyweight Direct Line has lost more customers in the key motor market but insisted it is making progress under new chief executive Adam Winslow.
The group, which employs around 1,000 staff in Glasgow, revealed that the number of motor policies in force under its own brands fell to 3,235,000 in the quarter to March 31, from 3,669,000 in the same period last year.
The 434,000 fall in customer numbers came after the group increased premiums to help compensate for the sharp increase in the cost of claims it has faced mid the surge in inflation.
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The average premium paid by existing customers increased by 38% year on year in the quarter to March 31, to £515 from £373. New customers paid £599 on average, up 25% from £478 in the same period of 2023.
Hargreaves Landown equity analyst Matt Britzman said such “mammoth” price hikes were necessary for Direct Line to get its motor insurance operations back to sustained profitability.
He noted: “With a new CEO and an improving market, the motor business looks to finally have a footing from which it can grow.”
Direct Line was slow to respond to inflationary pressures which past chief executives noted had dented the profitability of its operations.
The firm has issued profit warnings in recent years.
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In January last year the group announced Penny James had stood down as chief executive with immediate effect. The same month it scrapped its final dividend for 2022.
Mr Winslow took charge in March after Jon Greenwood served as acting chief executive.
Mr Winslow said yesterday that the group had enjoyed a positive start to the year. Premium increases helped it to increase own brand motor income by 13% to £400m from £353m.
The group earned £24m income under an agreement to provide policies for Motability, which has been operational since September. Some 837,000 policies are in force under the agreement.
“Claims trends and Motor margins continue to develop in line with our expectations,” said Mr Winslow.
Home insurance premium increases offset a 46,000 fall in total customer numbers, to 2,450,000. Home premium income rose to £147.3m from £129m.
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Mr Winslow said the group is confident of achieving the £100m annual cost savings target it announced in March after spurning a takeover approach by Ageas of Belgium, which directors said undervalued the group.
Ageas decided to walk away after raising its bid from 233p per share to 237p per share, which put a valuation of £3.2bn on Direct Line Group
Shares in Direct Line Insurance Group closed up 2.4p at 191.1p yesterday afternoon.
Mr Winslow will unveil a “refreshed” strategy in July and update on the group’s dividend policy.
“There’s still a long way to go if Direct Line wants to return a stable dividend and restore investor confidence,” said Mr Britzman at Hargreaves Lansdown.
AJ Bell investment director Russ Mould cautioned: “Investors remain lukewarm and the longer the shares trade at a depressed valuation the more vulnerable the company looks to takeover attention.”
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Total customer numbers at Direct Line's ongoing operations increased to 9.268m in the quarter to March 31 from 9.228m in the same period last time. Its operations include the Green Flag breakdown business.
In March Direct Line announced a 4p per share dividend for 2023 which it said followed good performance in the home, commercial and vehicle rescue markets.
It said then: “The period over which to judge the sustainability of Motor’s capital generation has been short and consequently this dividend should not be regarded as a resumption of regular dividends.”
The group incurred £190m operating losses in 2023 but made £277m profit before tax helped by the £520m sale of its commercial brokered business to RSA Insurance in September.
Admiral Group grew profits by 23% to £442m in 2023, from £361m in the preceding year. It maintained motor customer numbers at 4.94 million.
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