Direct Line misses profit expectations despite price hikes

UK home and car insurer Direct Line returned to profit but missed earnings expectations for the half-year as sharp price hikes saw customers shop for better deals.

The company on Wednesday reported an operating profit of £63.7m, compared with a loss of £76m a year earlier, but well below company-compiled estimates of £85m.

Direct Line has been trying to recover from the impact of higher inflation and party supply problems along with an attempted takeover by Belgian rival Ageas, which led to a profit warning and the sudden departure of then chief executive Penny James.

New CEO Adam Winslow immediately ordered a restructure after it fended off a takeover attempt by Belgian rival Ageas in March.

Consumers are also looking for better deals as insurers across the board have hammered customers with massive premium hikes to maintain profits.

Gross written premiums rose 53.5% to £1.8bn, while in-force policies were down 3.1% to £9m, with the biggest fall coming from its motor business.

“It’s no secret that Direct Line has struggled over the past few years to deal with a challenging motor insurance market, and operational missteps have been a drag on performance,” said Matt Britzman, senior equity analyst, at Hargreaves Lansdown.

“Profit returns, but there’s a cost. Own-brand policyholders have been expected to fork out 27% higher average premiums over the half, as price hikes have been a necessary evil to pull insurance margins back to a level that enables profitable business.”

“To be fair, most of the industry has been in the hiking game, but Direct Line was behind the curve, meaning it’s taken longer to feed through to the profit line. But it was always a balancing act, and own-brand customer numbers continue to plummet to the tune of 488,000 compared to last year, as drivers search for better deals.”

Reporting by Frank Prenesti for Sharecast.com