Direct Line Insurance Group PLC (LSE:DLG)’s annual results were slightly confusing at face value.
The motor insurer wrote £3.1 billion of gross premiums in 2023 which, while up 27% year on year, still managed to undershoot consensus expectations by 10%.
Operating losses clocked in at a meaty £189.5 million, a dramatic uptick from £6.4 million of losses in 2022.
But, even though “trading numbers were bad, worse than expected”, as Panmure Gordon put it, the FTSE 250 constituent decided to reinstate its dividend after a one-year sabbatical.
At 4p per share, it was a modest dividend reintroduction, but Direct Line may have felt obliged to offer up at least some good news.
Panmure called the divi Direct Line’s “saving grace”, while Matt Britzman, equity analyst at Hargreaves Lansdown, said “this will be a welcome relief to investors who’ve had to wait for performance to improve before the board felt comfortable reinstating the dividend”.
But Britzman also warned that “things have picked up, but there’s a long way to go before this turnaround is complete”.
“It’s no secret that Direct Line has struggled over the past few years to deal with a challenging motor insurance market,” said Britznman.
“With a new CEO and an improving market, there are early signs that it’s back to writing profitable business, and changes are underway to try to keep it that way.
“But getting to this stage has come at a cost, motor premiums were up 37% over the final quarter, and customers of own-brand products voted with their feet, some 383,000 walking out the door.
“It’s been a necessary evil to get profitability back, but that trend needs to reverse over the coming quarters.”
Under this turnaround, Direct Line intends to find £100 million in savings via cost-cutting measures by the end of 2025, all the while keeping shareholders on side with cash distributions.
This was easy enough to do given Direct Line gained £440 million by selling off its brokered commercial business, but it could prove the be a tricker tightrope to walk down the line.
Panmure appears tentatively optimistic, stating: “Overall, we think Adam Winslow, the new CEO, has balanced the delivery today of getting the bad news out and softening the blow by reinstating the dividends with sensible forward-looking targets.”