Profit growth slows at Direct Line in third quarter

1st Nov 2013 07:03

- Q3 operating profits up 6.1 per cent- Gross written premium continues to worsen- 4p special dividend confirmedFTSE 250 insurer Direct Line saw operating profits growth slow in the third quarter, but said it was on track to meet its operating targets. A 6.1% increase for the quarter to £131.2m was down markedly on the 27.8% growth enjoyed in the first half of the year, and means total operating profits have grown 21.1% in the first nine months to £417.8m. Profit growth has been driven by improving underwriting profits thanks to fewer major weather events in the UK, continued reserve releases and lower costs, but was partially offset by lower investment returns. Gross written premium was 4.3% lower for the first nine months of 2013, worsening slightly from the 4% seen in the first six months, which the company said reflected competitive market conditions in UK personal lines and partially offset by growth in its international and commercial segments.Chief Executive Officer Paul Geddes said it was a good result in competitive markets, with a 95.4% combined operating ratio up from 94.6% at the half-year, and a return on tangible equity of 16.8% compared to 17.3% in the first half. "Even after allowing for normal weather losses, our performance proves we are delivering our self-help agenda and making good progress towards our strategic targets."The group has set a target of a 15% return on tangible equity and its full-year target for combined operating ratio is 98%.The total cost base was 9.9% lower for the first nine months as benefits from cost savings initiatives began to be recognised.Earnings per share for the first nine months were 16.3p, up 71% year-on-year.Geddes said: "While these results demonstrate our continuing choice to focus on value of business over volume, in Motor we were able to reduce average prices for our customers helped by our own claims efficiencies and the benefits of the recent legal reforms."He also revealed the group continued to invest in technology to aid customer service and drive further business improvements. The board confirmed it would pay a 4p per share special dividend after it decided that the October 8th agreement to sell of its closed life insurance operation for £62m represented "inorganic capital generation" and so was appropriate to return the sale proceeds to shareholders after completion.OH