UK Insurer Direct Line’s H1 Profits Beat Forecasts as Auto Claims Drop During Lockdown

By Muvija M | August 4, 2020

Insurer Direct Line gave a double bonus to shareholders on Tuesday as first-half profits beat expectations due to a slump in motor claims as Britons drove less during the coronavirus lockdown.

Britain’s biggest car insurer raised its interim dividend 2.8% to 7.4 pence and said it would also make a special payout of 14.4p per share, making up for a decision in April to cancel its year-end dividend due to uncertainties over the impact of the pandemic.

Shares in Direct Line jumped to a five-month high as the group bucked a trend in much of the insurance sector, where dividends are being held back to conserve cash because of a tide of payouts resulting from the COVID-19 crisis.

Direct Line, which is yet to reinstate travel insurance cover, kept the impact from the pandemic on travel and business interruption unchanged at 25 million pounds and 10 million pounds, respectively.

Motor claims recorded a sharp fall because of the lockdown.

Finance Chief Tim Harris told Reuters the estimate relating to the pandemic is not expected to increase.

“(As) lockdown restrictions gradually ease, we are seeing a return in volume of miles that people are driving back towards pre-lockdown levels, and claims are tracking that, but at the moment not quite up to the level we were experiencing before the lockdown,” Harris said.

Operating profit in the motor business jumped 43.4% to 220.5 million pounds ($288 million) during the first half ended June 30, with claims notifications down 70% at the peak of the stay-at-home orders.

“We continue to believe in DLG’s ability to grow its ordinary dividend … driven by its competitive advantage of having the lowest claims inflation among the listed peers,” Panmure Gordon analyst Ming Zhu said.

The company, which also owns brands such as Churchill, Green Flag and Privilege, said overall operating profit reached 264.9 million pounds, above an average analyst forecast of 239 million.

Its gross written premiums inched up by 0.4% to 1.58 billion pounds, while the combined operating ratio dipped to 90.3% from 92.5%. A ratio below 100% means the insurer earns more in premiums than it pays out in claims.

Direct Line shares hit their highest since March and were up 7.5% at 330.7p by 0852 GMT.

($1 = 0.7659 pounds) (Reporting by Muvija M in Bengaluru and Carolyn Cohn in London Editing by Bernard Orr and David Holmes)

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