Direct Line reports 12% rise in pre-tax profits but strikes a cautious outlook

3rd Mar 2015 08:03

Insurance group Direct Line reported a 12% increase in full-year pre-tax profit from continuing operations but struck a cautious tone on the outlook for UK motor and home insurance markets.Britain's largest motor insurer reported a pre-tax profit of £456.8m for 2014 compared with £407.3m in the previous year. The company's combined operating ratio - a measure of underwriting performance under which a value below 100% represents a profit - improved by 0.2 percentage point to 95.0% last year.Operating profit from ongoing operations decreased to £506.0m from £509.9m. The group warned that the UK motor and home insurance markets are still highly competitive, threatening to put pressure on premiums."The UK motor and home markets remain highly competitive with recent market conditions characterised by periods of market price deflation and of stability. Early 2015 has seen some additional, potentially seasonal, market pressure in motor and broad stability in the home market," said chief executive Paul Geddes."Against this backdrop the group will continue to adopt a flexible, but disciplined, approach to managing the trade-off between margin and volumes. Meanwhile the group is investing in building future capability and continues to identify opportunities to improve efficiency," added Geddes.The insurer said its total dividend for 2014 increased to 27.2p from 20.6p in 2013, boosted by a 4.8% increase in the final dividend to 8.8p per share and a second special interim dividend of 4.0p per share.The group, which used to be part of the taxpayer-backed Royal Bank of Scotland but listed in 2012 at 175p a share, said it had either met or exceeded all of its targets for 2014 and for the IPO. Direct Line also confirmed that it has reached a binding agreement for the sale of its international division for €550m.Shore Capital, a UK broker, said Direct Line's annual results were better than their expectations, reflecting the impact of higher than forecast reserve releases. "The group again warned of the competitive nature of both of its key markets, namely motor and household, albeit that there appears to be stability in motor pricing - an aspect that we expect to continue for the rest of 2015," added Shore Capital.