Direct Line's top line and margins improve despite customer outflows

By Aidan Gregory

March 4 - (The Insurer) - Direct Line Group grew its gross written premium by 25.3% in 2024 as the UK home and motor insurer’s turnaround under CEO Adam Winslow gathered momentum despite an outflow of motor insurance customers.

In its 2024 annual results statement on Tuesday, Direct Line Group said that it wrote 3.7 billion pounds ($4.7 billion) of premium and associated fees last year, up 25.2% from 2023.

The insurer posted a net insurance margin of 3.6%, a 12.3 percentage point increase from the previous year, while its return on equity was 10% for 2024, an improvement from a deficit of 14.9% in 2023.

Direct Line Group’s operating profit grew to 205 million pounds, up from a loss of 189.9 million pounds in 2023.

"Our 2024 financial results demonstrate the significant progress we have made, so far, in transforming the business,” said Winslow in a statement on Tuesday. “The turnaround strategy, launched in July, has made a marked difference to the company's performance, and we have good momentum across all our business lines.”

While the health of Direct Line Group's balance sheet improved last year, the company also suffered from outflows of customers with its overall number of in-force policies falling 5.5% to 8.8 million.

The number of motor policies in force fell 8.4% to 3.8 million following aggressive price hikes by Direct Line Group to improve profitability, while the number of home policies grew by just 0.7% to 2.46 million.

“Despite market growth last year, Direct Line has struggled to expand in these key areas, potentially due to its delayed adoption of price comparison platforms and less efficient underwriting practices,” said Henry Heathfield, equity analyst at Morningstar in London, in a note on Monday. “Many of its policies have been consistently absorbed by competitors.”

Direct Line Group was hit hard by large UK motor losses following the pandemic due to weather conditions and social inflation. A profit warning in January 2023 led to the suspension of the insurer’s 2022 dividend and the resignation of its former CEO Penny James.

Under Winslow, who joined from Aviva in March last year, Direct Line Group has cut costs, restored its dividend, strengthened its balance sheet and reversed its longstanding policy of shunning price comparison websites, where most of the UK’s home and motor insurance policies are transacted.

“During the year, we improved our reinsurance protection to reduce future earnings volatility and further diversified our asset portfolio whilst ensuring it closely matches liabilities and carried out an independent third-party reserve review,” Winslow added.

Direct Line Group has recommended a final dividend of five pence a share for 2024. It expects to deliver at least 100 million pounds of gross run-rate savings by the end of this year, and a 13% net insurance margin in 2026.

The prolonged weakness of Direct Line Group’s share price following the company’s difficulties in the wake of the pandemic led to takeover interest.

In December, the insurer’s board of directors agreed to a 3.7 billion pound offer from rival UK insurer Aviva, after rebuffing two lower bids from Belgian insurer Ageas earlier in 2024. The deal with Aviva, which offered Direct Line Group’s shareholders a 73.3% premium, is expected to close in mid-2025, subject to regulatory approval.

Direct Line Group shareholders are due to vote on the takeover at a meeting on March 10.

Last week, Aviva said the acquisition of Direct Line Group was an acceleration of its strategy to power returns through capital light businesses, which now make up more than 56% of its operating profits, according to Aviva’s 2024 results.

The deal will create a leading UK P&C insurer, with a share of around a fifth of the country’s home and motor insurance markets.