Lower weather-related losses at the home and commercial operations largely explain this solid first-half performance from insurer Direct Line (DLG). Indeed, its combined ratio (of claims to premiums) improved from last year's loss-making 101 per cent to a profitable 94.6 per cent.
That weather-related boost, for example, helped the home unit's combined ratio to improve to an impressively profitable 86.3 per cent from a loss-making 103.4 per cent. But plenty of challenges remain in the cut-throat motor market, where Direct Line generates 55 per cent of operating profit. The group's second-quarter motor premium rates fell 3 per cent year on year - which, admittedly, isn't bad in a market where, on average, rates are falling by over 8 per cent. Meanwhile recent legislative moves, such as banning legal referral fees, could yet cut claims. But motor pricing pressures look set to persist, and a Competition Commission probe into this sector - due to report in the autumn - adds to the uncertainty.
The investment book is 98 per cent focused on safe-looking cash and bonds and generated a 2.3 per cent return - reasonable enough in today's low yield world.
Broker Numis Securities expects full-year pre-tax profit of £285.6m, giving EPS of 23.3p (from £249.1m and 21.3p in 2012) and net tangible assets (NTA) of 160.5p.
DIRECT LINE (DLG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 233p | MARKET VALUE: | £3.5bn | |
| TOUCH: | 233-234p | 12-MONTH HIGH: | 238p | LOW: 175p |
| DIVIDEND YIELD: | 5.2% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 186p | COMBINED RATIO: | 94.6% | |
| Half-year to 30 Jun | Net premiums (£bn) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 1.87 | 107 | 176 | nil† |
| 2013 | 1.77 | 209 | 105 | 4.20 |
| % change | -5 | +95 | -40 | - |
Ex-div: 14 Aug Payment: 26 Sep †Prior to flotation | ||||
