Direct Line agrees £520mn sale of brokered business insurance coverage unit

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Shares in Direct Line jumped 14 per cent after the UK motor insurer agreed to promote its brokered business insurance coverage unit for £520mn in a bid to shore up its stability sheet after a string of revenue warnings.

The group on Thursday mentioned its first-half pre-tax loss had widened to £76.3mn within the six months to June, in contrast with an £11.1mn loss in the identical interval final yr as rising premiums took “longer than anticipated” to enhance its margins.

“First-half earnings are usually not the place we want them to be,” mentioned interim chief govt Jon Greenwood, including that the corporate was, nonetheless, now writing enterprise at improved margins.

Analysts at Citi mentioned though the outcomes have been “very poor”, there have been constructive indicators on the outlook, and the sale of the brokered business insurance coverage unit had “fully eliminated” the prospect of an fairness increase.

The outcomes come after a collection of revenue warnings from Direct Line within the final yr as rising costs for automobile components and second-hand vehicles drove up the price of payouts. The corporate minimize its annual last dividend this yr as unhealthy climate added to the strain.

The solvency ratio, a measure of capital as a share of the regulatory requirement, got here in at 147 per cent on the finish of June, worse than what analysts have been anticipating, however the firm mentioned the newly introduced sale would add about 45 share factors to this measure.

Greenwood mentioned the £520mn sale put the insurer’s solvency in a “very wholesome place” and the group was not contemplating elevating capital by way of share points to strengthen its stability sheet.

Direct Line on Thursday reported a mixed working ratio — a key measure of underwriting profitability that measures claims and bills as a share of premiums — of 106.4 per cent, up from 88.7 per cent final yr. Something above 100 per cent represents an underwriting loss.

The FTSE 250 insurer added it could intention to restart dividends when it was capable of generate natural capital in its motor division. Enhancing margins in its motor enterprise have been materialising slower than anticipated and would stay difficult till the early a part of 2024 attributable to excessive inflation, notably in labour prices, mentioned Greenwood.

The earnings come after Direct Line appointed Aviva senior govt Adam Winslow as chief govt final week following the departure in January of Penny James. He’ll take up the function subsequent yr.

Direct Line has additionally come beneath regulatory scrutiny this yr after the Monetary Conduct Authority in June ordered it to overview claims paid out between 2017 and 2022. This prompted the insurer to say earlier this month that it could spend £30mn refunding prospects it overcharged for his or her dwelling and motor cowl.

Shares in Direct Line have retreated 22 per cent for the reason that begin of the yr.

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