UK: First half profits at Direct Line Group up 28% as cost cutting continues

Paul Geddes, chief executive of Direct Line Group
Photo: VisualMedia

Paul Geddes, chief executive of Direct Line Group Photo: VisualMedia - Credit: Archant

Insurance group Direct Line said today that lower claims from major weather events, combined with cost cutting, had driven an improvement in first half profits.

Direct Line Group, which also includes brands such as Churchill and Green Flag, reported an operating profit of £286.6million from ongoing businesses for the six months to June 30, up 27.8% from £224.2m in the first half of 2012.

Gross written premium for ongoing operations was 4.0% lower, which the group said reflected competitive market conditions in UK personal lines, partially offset by growth on the International side.

But the combined operating ratio (claims paid as a percentage of premium income) for ongoing operations improved by 6.5 percentage points, to 94.6% compared with 101.1% in last year’s first half, largely due to lower weather claims and reduced expenses.

Although these factors were partially offset by lower investment returns, bottom line pre-tax profits surged from £106.5m to £208.8m, reflecting sharply lower restructuring costs compared with a year earlier.

In June, however, almost at the end of the first half, Direct Line announced further cost-cutting measures putting around 2,000 jobs at risk.

A spokesman for the group confirmed at the time that the Churchill office in Princes Street, Ipswich, was among the locations likely to be affected, although he said the number of role as risk was likley to be fewer than 20 out of a total staff of nearly 500.

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Direct Line said it hoped to redeploy staff where possible and find opportunities for affected workers with other potential employers.

Group chief executive Paul Geddes said today: “These are a good set of results, even allowing for the benign weather in the period. Our transformation plan continues to deliver strong benefits to our Home and Motor businesses, and the total operating profit from our Commercial and International businesses doubled compared with the first half of 2012.

“The UK motor market remained competitive and dynamic, with significant premium reductions and the introduction of legal reforms. We believe the full effect of the reforms will take time to materialise and their ultimate impact is difficult to predict as it will depend on a change in the behaviour of claimants and lawyers.

“We continued to price based upon our observed claims experience, which was favourable. In the second quarter, this has helped us to reduce premium rates overall about 3% year on year, contributing to a stabilisation of our policy count.

“Alongside our ongoing focus on costs, we continue to invest in our future. In the second quarter, Direct Line launched a telematics black box and smartphone app, DrivePlus, while the group announced plans to establish a law firm to enhance the affordable legal services accessible to our customers.”