Insurance group Direct Line has reported a first half pre-tax profit of £208.8m – nearly double the £106.5m reported the year before thanks to rigorous cost cutting and lower personal injury and weather-related claims.
The group, spun out of the Royal Bank of Scotland in a £787m float last year and is now 48.5 per cent owned by the bank, said basic earnings per share were 10.1p, up from 5.5p in the first half of 2012. Operating profits grew by 28 per cent to £286.6m, driven primarily by lower claims from major weather events and cost cutting, party offset by lower investment reutrns.
Meanwhile, gross written premiums fell by four per cent to £2bn, as competition emerged from various price comparison services, along with legal reforms to eliminate the difference between male and female drivers’ insurance premiums.
In June, Direct Line said it would be cutting 2,000 jobs on top of the 1,200 announced last year in an attempt to cut £130m off annual costs by 2014.
Chief executive Paul Geddes said this was a good set of results – even taking into account the good weather.
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.
Shares were up 2.9 per cent at one point this morning and are currently hovering up around 1.4 per cent.