Direct Line Q3 gross written premiums drop but on track for 2018 targets
Insurer Direct Line posted a decline in third-quarter gross written premiums on Tuesday but said it was on track to meet its goals for 2018.
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Total third-quarter gross written premiums fell 5.8% to £854.5m, with premiums in the partnerships channel down 50% to £51.4m, mostly due to the exit from the Nationwide and Sainsbury's distribution partnerships.
Premiums in the motor division, meanwhile, fell 1.2% to £456.4m, while premiums in the commercial unit ticked 0.2% lower to £118m, but the home brand business saw premiums rise 0.9% on the year to £115.3m.
Direct Line said underlying claims inflation in the motor division was at the upper end of the group's long-term expectation of 3% to 5%.
Chief executive officer Paul Geddes said: "The group's performance during the quarter was robust in a competitive market. We continued to grow our direct own brands in-force policies while maintaining discipline on loss ratios. We are delivering our key strategic priorities, including strong growth in our direct Rescue and Commercial businesses, Green Flag and Direct Line for Business, and we are on track to begin rolling out our new personal lines systems in 2019.
"Overall, we are making good progress on our strategic priorities and are on course to meet our 2018 and medium-term financial targets."
For 2018 and over the medium term, the group is targeting a 93% to 95% combined operating ratio, assuming a normal level of claims and no change in the Ogden discount rate, supported by reductions in expense and commission ratios and an ongoing target of achieving at least a 15% return on tangible equity. For 2018, it expects overall investment income of around £150m.
RBC Capital Markets said the statement contained no surprises.
"Premiums were in line with our expectations and there were no warnings on profitability like elsewhere in the UK motor sub-sector this reporting season. Direct Line reiterated that it expects to achieve both its 2018 and medium term financial targets.
"We forecast a 2018E combined ratio of 93.8% in the middle of the 93-95% range that the company targets. With the statement in line with our expectations, we leave our earnings estimates and price target of 400p unchanged."
RBC rates the stock at 'outperform'.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "You need to look past the loss of Sainsbury’s and Nationwide branded policies to get to the real picture at Direct Line.
"There’s evidence that the general insurance industry remains intensely competitive, as premium growth lagging the number of in-force policies suggests pricing is under pressure. That’s not a new trend though, and unchanged full year and medium term guidance suggests Direct Line is managing the headwind well.
"The strong growth in own brand policies across all segments is particularly pleasing, since the this should be higher margin business - helping to offset the slight increase in claims that Direct Line has reported this time round."
At 0845 GMT, the shares were down 0.7% to 315.80p.