Direct Line returned to profit but made less than expected as it shed 488,000 motor customers after raising its premiums by as much as 31%.
The insurance group, which has struggled with the post-pandemic jump in the cost of claims, made an operating profit of £63.7 million during the six months to June 30 compared to a loss of £76.3m in the same period a year earlier. That was lower than the £85m profit forecast by most analysts, sending its shares lower in yesterday's trading.
Chief executive Adam Winslow said there is still "more to do" as the group's net insurance margin - a measure of underwriting profits as a proportion of revenues - came in at 1.8% versus expectations of 3%. The number of in-force policies was 3.1% lower than at the end of December.
Its motor insurance division, which makes up almost half of all active policies, has been weighed down by unprofitable contracts written in during the past 18 months but aggressive price hikes are now beginning to catch up with inflated costs for parts and labour.
"The actions we have taken are beginning to make a difference but there is more to do," Mr Winslow said. "We will continue to drive business transformation during the second half of 2024 and into 2025, as our new high calibre management team continues to arrive."
The number of own-brand motor policies in force fell by 7.5% during the first half, although the rate of decline reduced in the second quarter.
Direct Line said average premiums for new customers rose 16% year-on-year to £592, while existing customers saw renewal prices surge 31% to £514. Overall, own-brand average motor premiums were 27% higher at £538 but the policy count fell by 488,000 to 3.1 million.
The performance of its non-motor business, which includes home and commercial insurance, was significantly stronger. The net insurance margin for this division was 11.6%.
READ MORE: Customers ditch Direct Line as car insurance premiums surge
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said the motoring division isn't yet back to delivering positive margins but this "should fix itself over the second half".
"Motor customer numbers are falling quite sharply," he added.
"That’s okay in the short term, while margins are the priority. Further out, we’ll be hoping to see the introduction of Direct Line to price comparison sites as a catalyst for customer growth."
The group - whose brands also include Churchill, Darwin, Privilege and Green Flag - fended off a £3.1 billion takeover attempt earlier this year by Belgian rival Ageas and is now pressing ahead with a programme to cut costs by £100m by the end of 2025.
"We have over 50 cost initiatives identified, many of which are underway, and we see opportunity to go further once these are realised," Direct Line said. "As previously disclosed, the total cost to achieve these savings is expected to be around £165m across 2024 and 2025, with a significant proportion funded through our existing planned capital expenditure assumptions.
READ MORE: Direct Line rejects improved £3.2bn takeover bid from Ageas
"In the first half, we have taken a range of near-term cost actions such as limiting recruitment that does not align with our future-state model, allocating our brand media expenditure more efficiently and reducing discretionary expenditure."
Direct Line is the UK's second-largest motor insurance group and a major employer in Scotland with approximately 1,000 staff based mainly out of Direct Line House in Glasgow's Cadogan Street.
Yesterday's results come after the company admitted last month to an accounting error that overly flattered a key gauge of its financial strength. This forced a recalculation of its solvency ratio down to 188% versus 197% previously.
At the end of June, the company's solvency ratio was broadly in line with expectations at 200%. Direct Line has also reinstated dividends with an interim payment of 2p per share for the first half.
Shares in the FTSE-250 listed firm closed yesterday's trading 4.6p lower at 188.5p.
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