DLG bid evidence of ‘a fairly optimistic outlook’ for UK motor

The recent bids made by Belgian insurer Ageas to acquire Direct Line Group (DLG) are evidence of “a fairly optimistic outlook” for the UK motor insurance sector.

That was according to Sabre chief executive Geoff Carter, who told Insurance Times that the bids “suggest that someone who knows quite a lot about UK motor thinks it’s an area worth investing in”. 

Ageas first confirmed that it was considering making an offer of around £3.1bn to acquire DLG at the end of last month (28 February 2024) and then returned with an improved bid last week (13 March 2024).

Both offers have been knocked back by DLG, which released a statement saying the offer was “uncertain, unattractive and that it significantly undervalues DLG and its future prospects, while also being highly opportunistic in nature”. 

However, an Ageas statement said that it “firmly believes that the combination of Ageas’ and Direct Line’s UK businesses will be beneficial” for shareholders.

Following the sale of its commercial lines business to RSA last year, DLG is now primarily focused on personal lines – with motor making up the majority of its book. 

Ageas UK operates solely in personal lines business and its Belgian parent has clearly identified what it believes to be synergies with DLG, as well as the potential for strong future profitability in the UK motor market.

Light emerging

Carter added that “there is light emerging” when it comes to the state of the UK motor market, following a prolonged period of high combined operating ratios (COR) across the sector. 

According to an Insurance DataLab analysis of the latest Solvency and Financial Condition Reports (SFCRs), published last year (29 November 2023), motor insurers across the UK and Gibraltar reported an average COR of 111.1% for 2022/23 – up from 97.4% for the previous year.

And according to Pearson Ham’s Quarterly Q4 Insurance Price Index, published in January 2024, motor insurance prices reflected an average increase of 47% throughout 2023 and, in the final quarter of the year, premium inflation continued to slow down with a month-on-month reduction observed in December for the first time since April 2022.

Last month (13 February 2024), Pearson Ham Group director Stephen Kennedy told Insurance Times that the pricing cycle in UK motor insurance was now “close to a point of softening” and “may occur earlier than originally anticipated”. 

It is perhaps this softening that has prompted Ageas to consider acquiring one of the UK’s major personal lines motor insurers, with a view to buying a valuable asset during a tough period in the market.

However, after rejecting the first Ageas bid, a DLG statement said: ”The board is confident in DLG’s standalone prospects given its strong strategic position, powerful brands and robust capital position.”