Direct Line shares soar despite losses after £520m commercial insurance sale
Shares in Direct Line soared more than 13 per cent this morning despite a near fivefold first half loss, after the insurer sold its commercial insurance business (NIG) for £520m.
Embattled Direct Line reported pre-tax losses rose from £11.1m to £76.3m, continuing a tumultuous patch which has seen it axe its dividend and ultimately prompted the departure of chief Penny James in January.
Operating profits swung from a £197m profit last year to a loss of £78.3m, with the groups’ dividend slashed from 7.6 to 0 year-on-year.
But yesterdays’ news that Direct Line is to sell its brokered commercial insurance business (NIG) to Canadian property and casualty insurer Intact Financial for an upfront cost of £520m bumped up shares in early trading.
The insurer last week appointed Aviva exec Adam Winslow to lead the turnaround from what has been described as one of the worst periods in its history.
Interim CEO Jon Greenwood said the proposed sale of NIG was forecast to improve the groups’ solvency capital ratio “significantly,” with the transaction still subject to shareholder approval.
He added: “Over the last six months we have taken decisive action to put the group back on a more stable footing. In March, we set out that our key priorities were to restore capital resilience, to improve motor performance and to maintain the performance of our non-Motor businesses.”
Inflation, supply chain challenges after the pandemic and Vladimir Putin’s invasion of Ukraine have hiked up the cost of motor repairs significantly.
Losses in its motor insurance segment were at £183.8m, down from a £53.2m profit last year as insurance claims ratio deteriorated, although it argued this was offset by gains in its Home, Rescue and Personal Line segments.
Greenwood noted that the personal lines market “continues to be challenging, we are taking actions necessary to set the group up for improved performance.”
The results are yet more evidence of the huge challenge faced by new boss Adam Winslow, with the Bromley-based firm performing particularly poorly this year compared to its rivals, in a difficult climate for the UK general insurance market as a whole.
Shares are down 27 per cent this year to date.
Josh Warner, Market Analyst at StoneX, said: “Direct Line has plunged over 33 per cent in 2023 after profitability of its underwriting business was hammered by inflationary pressures pushing up the costs of repairing damaged motor vehicles and because customers have been claiming more frequently.”
“However, the insurer has started to make tangible progress. The sale of its brokered commercial insurance business will streamline its business and allow it to sharpen its focus while higher prices are also helping margins improve at its key motor insurance business – although it will take time for this to feed through to the bottom-line.”