Direct Line’s premiums drop by 2.1%

Premiums at Direct Line fell by 2.1% to £753.9m this morning, as the insurer reported its trading update for the first quarter.

Growth in its motor insurance business struggled, with chief financial officer and incoming chief executive Penny James citing “tough competition” in the market that was failing to keep up with increasing claims costs.

James added: “The first quarter was characterised by significant operational progress in a tough trading environment.

“We remain on track to achieve our 2019 operating expenses target of less than £700m and we reiterate our target to achieve a 93% to 95% combined operating ratio in 2019 and over the medium term.”

It follows a new travel IT system beginning to be delivered last month, in support of the group’s partnerships. This has given rise to Direct Line’s first fully automated travel claim payment.

She added: “We are in the early stages of our plan to progressively roll out the new systems across our brands, products and channels so as to improve our competitiveness and customer experience.”

Motor

The firm said that motor in-force policies were flat quarter on quarter due to pricing initiatives helping offset some of the pressure from market premium inflation not reflecting claims inflation. It said that lower motor average premiums were primarily due to reduced risk mix arising from these pricing initiatives.

Claims inflation was at the higher end of the firm’s longer-term expectations of 3% to 5% because of the continuation of higher motor third-party property damage costs. Overall GWP in motor decreased by 4.2% year-on-year.

Home

For home – own brands were broadly stable in comparison to the previous year, however home partnerships premiums reduced by 5.7% year-on-year, primarily as a result of the continued run-off of certain partnerships contracts.

James added: “The home market has been slightly less challenging than motor but remained competitive. Elsewhere, Green Flag and Direct Line for Business continued their growth, increasing premiums by 15.8% and 8.1% respectively.”

Weather in Q1 was reported as benign compared to the extreme weather in 2018 within the same quarter.

Rescue and other personal lines premiums increased by 1.7% year on year with the insurer’s own brand, Green Flag, growing premiums by 15.8%.

Commercial

Commercial premiums grew by 1.2% year-on-year and reflected a 8.1% growth in the insurer’s direct brand – Direct Line for Business.

James concluded: “As we said at the full year results, 2019 is a pivotal year for the delivery of our technology transformation programme and I’m delighted that we’ve had a successful start with the launch of our new PCW focused brand Darwin and the start of the roll-out of our new Motor and Travel systems.”

Other insurers such as Esure have reported disappointing results as a result of the difficult motor market. This last month put the firm just above its solvency capital requirement. Saga also saw its shares fall by 8% to 61.2p last month, after being hit by the FCA unfair renewal pricing crackdown.