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Direct Line’s new chief said the UK motor insurer had “a very successful future . . . in front of us” as it launched a fightback against a takeover attempt from Belgian rival Ageas with new cost savings and profit targets.
Unveiling his first set of full-year results on Thursday, just weeks after he joined the group, Adam Winslow said Direct Line had a “strong platform for recovery”, after a return to profit allowed the group to announce a dividend of 4p per share.
Direct Line rebounded from a restated pre-tax loss of £302mn in 2022 to a £277mn pre-tax profit last year, boosted by a sale of its brokered commercial business, but shy of consensus estimates compiled by Bloomberg.
Things were worse at the operating level, where operations delivered a loss of £190mn, as motor policies written at lower prices continued to have an impact. This was offset by a positive contribution from other business lines, such as home insurance and motor rescue.
The group said its motor business had now “turned the corner” as it pushed up prices, adding that policies sold in the second half were estimated to achieve a net insurance margin — a new measure which calculates insurance profits as a proportion of revenues — of more than 10 per cent, its target. It set a new 13 per cent target for this metric to be achieved in 2026.
Winslow said the group had “identified immediate actions we can take in 2024 to create value” as well as promising a “comprehensive strategy review” to be unveiled in July. The group has targeted £100mn in annual cost savings by the end of next year.
A presentation released alongside the results included a reduction in its outlay on marketing and tightening discretionary spending elsewhere. Asked if the savings target — which equates to just over a 10th of the group’s cost base — would include job cuts, Winslow said the company was “not announcing anything on jobs today” and would talk to colleagues first.
Direct Line struggled to deal with post-pandemic inflation, leading to a string of profit warnings, the departure of its chief executive and the suspension of its dividend.
Its interim boss last year said that the company had been guilty of “over-optimism” in not pushing through enough price rises. It has since raised premiums sharply, in line with peers.
Ageas has had two preliminary cash-and-share offers rejected by Direct Line’s board, the second of which valued the group at 237p per share. The insurer’s board said the offer, which implied a £3.2bn valuation, was “uncertain, unattractive, and significantly undervalues” it, in a statement earlier this month.
Analysts at Jefferies have previously estimated that an offer in the 270p to 300p per share range would have “a higher likelihood of being accepted . . . and would be more in line with recent M&A valuations in the sector”. Under takeover rules, Ageas has until March 27 to announce whether it has a firm intention to make an offer.
Direct Line’s shares were 1 per cent higher in early trading.
