Direct Line brings back dividend despite £190m loss as new boss plots cost-cutting drive

Direct Line has brought back its dividend despite a huge increase in losses, as its new boss tries to reassure investors with a cost-cutting program and a “global strategy review”.

The insurer proposed a dividend of 4 pence per share on Thursday, after being forced to scrap its final annual payout following a loss in 2022, which the group said was achievable due to its “strong capital position” and “good performance” in its domestic, commercial sector. and emergency units.

But the company has revealed cost-cutting plans which it says will save it £100m a year by the end of 2025, and raised its net insurance margin (NIM) target – the amount it earns from selling policies after redemption – to 13% by 2026.

It helped Direct line actions jumped 1.8 per cent to 215.3p in early trading, having risen almost 50 per cent over the last year following two rejected takeover bids.

Direct Line posted an operating loss of £189.5 million for the 12 months ended December 31, compared with £6.4 million the previous year, due to weakness in its automotive business, which led to a NIM of -8.3 percent.

The group said that without the impact of its automotive business, its NIM was 12.2 percent, while the sale of its brokerage business last year contributed to a pre-tax profit of 277.4 million of pounds sterling, compared to a pre-tax loss of £301.8 million in 2017. 2022.

Boss Adam Winslow, who replaced Penny James following last year’s results, said: “The group has not always successfully managed volatile market conditions in recent years, particularly in the automotive sector .

“However, it is clear that the decisive actions taken by Jon Greenwood and the team over the last year have created a strong platform for recovery, including significant pricing and underwriting measures to improve our automotive margins and the sale of our negotiated commercial activities.

“While the situation has improved, we need to do more to improve performance and we have identified immediate actions we can take in 2024 to create value, including significantly reducing our cost base, promoting claims excellence and optimizing our pricing capabilities while driving us to higher levels. rating levels.

Winslow’s plans to revive Direct Line follow two “opportunistic” takeover bids, with the insurer rejecting the latest £3.2bn offer from Belgian rival Aegeas earlier this month.

He added that Direct Line is currently conducting a “comprehensive strategic review of the significant opportunities we see to generate higher returns”, which will be presented at its capital markets day in July.

Mark Crouch, an analyst at eToro, said Winslow’s plans “will require making full use of Direct Line’s large customer base and strong brand, both of which will be fundamental to turning around the company’s fortunes.”

He added: “However, with the share price trading at a 10-year low, it is no surprise that Direct Line is being considered as a takeover target.”

Matt Britzman, equity analyst at Hargreaves Lansdown, said: “Things have improved, but there is still a long way to go before this recovery is complete. It’s no secret that Direct Line has struggled in recent years to cope with a difficult auto insurance market.

“Recent buyout news has supported the shares, and they have remained at these high levels despite the board’s rejection of the offer.

“Yes, performance is improving and the guidance offers at least a glimpse of hope for better things to come.

“But it is still questionable whether this is more due to a better market in general than to Direct Line’s own initiative.

“Restoring investor confidence does not happen overnight, but the first steps have been taken in the right direction. »

DLG shares have been supercharged over the last year by takeover interest