Direct Line beats 2013 COR target thanks to reserve releases

Direct Line Group has beaten its 2013 combined operating ratio (COR) target of 98%, reporting a 96.1% COR for the year.

This was a 3.1 percentage point improvement over 2012’s COR of 99.2%.

The COR improvement was driven by “higher than expected” reserve releases of £435.1m (2012: £322m), which shaved 12.4 percentage points from the COR (2012: 8.7 points).

The improvement came despite continued competition in motor, where Direct Line Group cut  rates by 3%, and £89m of weather claims - £69m in home insurance and up to £13m in commercial.

The group also boosted profit after tax from continuing operations by 15% to £375.2m (2012: £326.5m).

However, gross written premium was down 4.1% to £3.8bn (2012: £4bn) as the company continued to underwrite selectively.

‘Good progress’

Direct Line Group chief executive Paul Geddes said: “We have continued to make good progress on our strategic priorities, helping us to achieve our 2013 financial targets in highly competitive markets.

“In UK motor, our improved pricing capability and claims management, as well as benefits arising from recent legal reforms, enabled us to reduce average prices for customers by 3% during 2013.

“In home, recent UK weather events have emphasised the importance of insurance. I am proud of our people who have been working tirelessly around the clock to assist customers affected by the floods and storms, both on the phones and on the ground.”

He added: “Looking forward to 2014, we will continue to pursue our strategic priorities and self-help agenda to enable us to deliver benefits for our customers and shareholders.”

More weather claims to come

Direct Line Group incurred £69m of weather claims in its home insurance business in 2013 and betwen £12m and £13m in its commercial division.

Most of the claims came from the flooding in the fourth quarter.

The company also estimates that the continued bad weather in 2014 will cost it between  £70 and £90m in the home business alone, with a further £20m coming from comercial.

However, the company warned that the estimates were early. It said: “More certainty around the actual claims costs will be possible only once flood waters have receded.”

Commercial boost

Despite incurring £20m of weather related claims in the year, Direct Line Group’s commercial division quadrupled its operating profit to £9.5m (2012: £2.2m).

The division is still making an underwriting loss: Its 2013 COR was 106.8%. However this is 1.4 points better than 2012’s 108.2%.

The company said its commercial COR would have been 104% excluding the weather claims, and added that the unit continues to enjoy “significant reserve releases”.

Direct Line Group is targeting a commercial COR below 100% for 2014.