Monday 14 October 2019

Direct Line cautions over Brexit as annual earnings fall

The Churchill insurance brand owner reported a 6.4% fall in operating profits to £601.7m for 2018

Insurer Direct Line has warned over a potentially ‘material’ hit to the group from a no-deal Brexit (Direct Line/PA)
Insurer Direct Line has warned over a potentially ‘material’ hit to the group from a no-deal Brexit (Direct Line/PA)

By Holly Williams, Press Association Deputy City Editor

Insurer Direct Line warned of a potentially “material” hit to the group if the UK crashes out of the EU without a deal, as it posted a drop in annual earnings.

The firm – which owns brands including Churchill – said it had “proactively taken steps” to mitigate any impact, but added that it was not “immune” to a hard Brexit, given its exposure to financial markets and as it imports goods and services from the EU to fulfil insurance claims.

It warned that, in the event of a disorderly Brexit, the impact on the group could “correspondingly also be disruptive and potentially material”.

The comments came as it reported a 6.4% fall in operating profits to £601.7 million for 2018 as gross written premiums dropped 5.3% to £3.2 billion.

It also dealt a blow to staff as it offered no free shares this year – having handed previously handed out nearly £1,700 worth of free shares per employee since flotation in 2013.

The group blamed the fall in earnings on lower reserve releases and investment returns, as well as a £75 million impact in claims related to last year’s extreme weather.

The drop also came despite a £55 million boost after changes to the UK’s Ogden personal injury discount rate change.

The annual results follow the announcement last week that boss Paul Geddes will be replaced by finance chief Penny James when he steps down in May after 10 years at the helm.

Announcing his last set of full-year figures, Mr Geddes said 2019 was a “pivotal year” for the group.

He added: “I am pleased to announce a strong set of results driven by our resilient business model which performed well in a highly competitive market.”

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Direct Line chief executive Paul Geddes is stepping down in May (Daniel Lewis/VisMedia/Direct Line/PA)

Results revealed that full-year statutory pre-tax profits lifted 8.1% to £582.6 million.

The group’s written premiums were knocked by the planned exit of home insurance partnership contracts for Nationwide and Sainsbury’s.

Home cover gross written premiums dropped 24% due to the move, but it said its own-brand premiums rose 0.7%.

Motor insurance premiums were “broadly stable” at £1.7 billion, with strong customer retention offsetting a slight fall in new business.

Direct Line reported a combined operating ratio – a measure of underwriting profitability – of 91.7%. A level below 100% indicates an underwriting profit.

It said it was targeting a combined operating ratio of 93%-95% for 2019 and is aiming to make further progress on slashing costs below £700 million.

Paul De’Ath, an analyst at Shore Capital, said: “Insurance is an industry where scale matters and Direct Line remains the largest motor and home insurer in the UK.

“The business is focused on the core market and has advantages over its peers through its network of repair centres and comprehensive offer to customers.”

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