Direct Line grows premiums in first quarter despite impact of Ogden discount rate reduction

Direct Line's motor business wasn't hit too hard by discount rate changes

Direct Line has reported an increase in gross written premiums for the three months to 31 March, after growing the number of commercial insurance policies it services.

The figures

Gross written premium from ongoing operations went up to £810m from £778m this time last year.

Total motor gross written premiums rose 8.9 per cent, with the average written premium increasing by 6.6 per cent following the changes to the discount rate.

The total number of in-force policies was down slightly, from 15.87m to 15.82m, however the number of in-force commercial policies rose 5.1 per cent compared to the same quarter of last year.

The company is still targeting a combined operating ratio (COR) in the range of 93-95 per cent for 2017.

Shares inched up by one per cent in early trading.

Why it's interesting

While the group has maintained its COR target, this is predicated on "a normal annual level of claims from major weather events and no further change to the Ogden discount rate". Earlier this year, Direct Line revealed profits had taken a £217m hit due to a government decision to slash the discount rate.

The insurer said today that changes to the Ogden rate had a "limited impact on premiums in the first quarter of 2017", however the group has increased motor prices in response to the lower discount rate and "the anticipated impact on claims inflation".

What Direct Line said

Chief executive Paul Geddes said: "Overall, I am pleased with the positive start we have made to the year, continuing the momentum we built in 2016 and supported by continued strong growth in the Direct Line brand.

We have delivered particularly strong results in motor and this performance has more than offset the challenging home market. Direct Line for business and Green Flag have also performed well.

What analysts said

Nicholas Hyett, an equity analyst at Hargreaves Lansdown said:

On motor insurance... “The fall in the Ogden rate, which played havoc with car insurers’ full year results, is already having knock on effects for consumers.

Direct Line has increased prices in response to the anticipated rise in claims and, combined with what was already an easing competitive landscape, that resulted in a very favourable motor insurance environment.

"Simultaneously growing the number of in-force policies means that the group is reaping the rewards of improved pricing.

On home insurance... "Things are less rosy in home insurance however, which now seems to be experiencing the same kind of margin pressures we saw in motor not all that long ago. Claims inflation is exceeding expectations and the group’s increased prices are driving away customers.

It’s a reminder that general insurance is a tough business, it’s a generic product with little to distinguish the main players other than price.

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