Insurer Direct Line Group PLC (LON:DLG) has reported a drop in 2016 profits impacted by last week’s shock decision by the Lord Chancellor to dramatically change the way in which personal injury claims are assessed.
The FTSE 100-listed firm posted pre-tax profits of £353.0mln for the 12 months to December 31, down from £507.5mln a year earlier, reflecting the one-off impact of using the new Ogden discount rate of minus 0.75%.
The group’s combined operating ratio from ongoing operations increased to 97.7% as a result of the reduction in the Ogden rate, partially offset by improved current-year underwriting performance and favourable weather claims.
Before the Ogden rate adjustments, Direct Line said that figure had fallen to 91.8%, down from 94.0% in 2015.
The firm saw its gross written premium for ongoing operations rise by 3.9% to £3.274.1bn in 2016, up from £3.152bn a year earlier, driven by growth in Motor and Home own-brand in-force policies, which were up 4.3%.
Successful year …
Paul Geddes, Direct Line’s CEO said: "2016 was a successful year for Direct Line Group and I'm proud of the strong own brand growth achieved in a switching market, proving our competitiveness in all our key categories and channels.
“This positions us well in a market disrupted by the reduction in the discount rate, and allows us to target a 93-95% combined operating ratio in 2017.”
He added: “We will continue to target improved efficiency and invest in customer and technology trends affecting our markets."
Direct Line increased its final dividend by 5.4% to 9.7p per share, up from 9.2p in 2015m, giving a total payout including the special interim dividend of 10.0p per share paid in September 2016 of 24.6 pence per share, down from the bumper 50.1p paid in 2015.
The group said its estimated Solvency II capital coverage ratio after the dividend payment is 165%, above the middle of its risk appetite range of 140%-180%.
Shares slip ...
In early trading, Direct Line shares on the FTSE 100 index drifted 0.7p lower to 347.7p.
Neil Wilson, senior market analyst at ETX Capital, said: “Profits at Direct Line were hit because of the reduction in the Ogden discount rate, although the reduction was at the lower end of guidance.”
He added: “The final dividend was raised 5.4%, taking total dividends for 2016 to 24.6p, half the 50.1p paid in 2015 and short of expectations for the year.
“Shares opened only a little lower at around 347p as most of the impact from the changes had already been baked in after the stock dropped last Monday to its lowest since the immediate aftermath of the Brexit referendum.”
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