Direct Line says coronavirus claims could weigh on its travel business
Direct Line said today that the coronavirus outbreak could hit the 2020 sales of its travel business.
The insurer said it had incurred coronavirus-related claims of around £1m, the majority of which were for trips to regions where the Foreign & Commonwealth Office (FCO) advised against all but essential travel.
The company also estimated the cost of storms Dennis and Ciara in February at £35m, against an expected annual weather cost of around £64m.
It said it was too early to assess the impact of storm Jorge which hit the UK at the weekend.
Direct Line said profit-before-tax for 2019 was £509.7m, down 12 per cent on the previous year.
Gross written premiums fell 0.3 per cent to £3.2bn, of which premiums from its own brands were flat at £2.2bn.
Direct Line’s combined operating ratio, a widely used industry metric, went up 0.6 percentage points to 92.2 per cent.
A combined ratio of less than 100 indicates that an insurer is making a profit on the premiums it writes.
Direct Line proposed a final ordinary dividend of 14.4p, up 2.9 per cent on 2018.
It also announced a £150m share buyback and said it was giving its staff £500 of free shares each.
Chief executive Penny James said: “We have delivered a good set of results, and continued to improve the quality, while navigating a difficult motor market and delivering significant change in the business.
“Our cost reductions and model of disciplined underwriting helped maintain a combined operating ratio of 92.2 per cent, supported by all our product lines.”
Last month the company said it would cut 800 jobs across the UK as it looked to reduce costs.
“The motor insurance market began to show signs of improvement in the second half of 2019, helping us return to growth while our other major markets were competitive, with pricing largely keeping pace with inflationary cost pressures,” James added.
Direct Line also said its chair Mike Biggs is intending to step down this year when a successor has been found.
Panmure Gordon analyst Ming Zhu said: “We continue to believe Direct Line will meet its cost reduction plans while improving its efficiencies.
“Its claims inflation is lower than most peers, which put it in a strong competitive position where motor premium pricing has been lagging claims inflation. We continue to believe its competitive edge is not reflected in the share price.”
Richard Hunter, head of markets at Interactive Investor, said: “Direct Line has had a difficult time of late, resulting in its relegation from the FTSE 100 in September, but its determination to drag the business to the next level is showing some early signs of progress.
“For the most part, the key metrics have declined from the previous year’s numbers, yet are fairly strongly ahead of expectations. Of particular relief is a creditable performance in the second half which, all things being equal, should set the group up for a pleasing performance this year.”
Direct Line shares rose 6.2 per cent this morning to 331p.