Lower investment returns and efforts to strengthen reserves pulled Direct Line’s (DLG) operating profit down a tenth during the first half of 2019, offsetting the benefits of more benign weather conditions and reduced operating expenses. The insurer also booked a £17m charge for the reduction in the Ogden rate – used to calculate how much compensation accident victims should receive – to -0.25 per cent, which added 1.1 percentage points to the combined operating ratio.
Gross premiums from own brands edged down despite the volume of policies in force rising, after continued pressure in the motor market. While the volume of written motor policies declined with the insurer's push to maintain its loss ratio in a competitive rate environment, a reduction in risk also led to lower average premiums. Overall policies in force were also dampened following the exit of partnerships with Nationwide and Sainsbury’s. Pricing improvements also meant the combined operating rate for home insurance policies was 2 percentage points better at 82.2 per cent, even after adjusting for the impact of last year’s bad weather.
Analysts at Peel Hunt forecast adjusted net tangible assets of 145p a share at the December year-end, compared with 147p at the same time in the prior year.
| DIRECT LINE (DLG) | ||||
| ORD PRICE: | 320p | MARKET VALUE: | £4.4bn | |
| TOUCH: | 319.8-320p | 12-MONTH HIGH: | 358p | LOW: 294p |
| DIVIDEND YIELD*: | 6.6% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 184p^ | COMBINED RATIO: | 92.5% | |
| Half-year to 30 Jun | Gross earned premiums (£bn) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p) |
| 2018 | 1.67 | 293 | 95.4 | 7.0 |
| 2019 | 1.59 | 261 | 75.7 | 7.2 |
| % change | -5 | -11 | -21 | +3 |
| Ex-div: | 8 Aug | |||
| Payment: | 6 Sep | |||
| *Excludes special dividend of 8.3p a share in 2018. ^Includes intangible assets of £629m, or 45.8p a share. | ||||
