Operating Profits Jump 28% At Direct Line Insurance Group PLC

Favourable weather helps Direct Line Insurance Group PLC (LON:DLG) reduce claims in the first half.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Direct Line Insurance Group (LSE: DLG) celebrated six months of boring weather as reduced claims from customers helped boost operating profits 28% to £287m through the first half of the year.

The improved profitability came despite net earned premiums — the premiums from insurance policies Direct Line gets to keep after paying off reinsurers — dropping 4.8% from a year ago as the company becomes more selective with the insurance policies it writes.

With fewer claims resulting from weather damage, Direct Line’s loss ratio — the amount of claims paid as a percentage of net earned premiums — improved from 67.3% to 60.3%. In addition to fewer claims, which is outside management’s control, the company’s operating expenses were cut by 18% falling from 25.4% of net earned premiums to 23%.

These reduced costs were enough to more than offset a rise in commission costs and pushed the company’s combined ratio — an industry metric that provides a quick look at how profitably an insurer underwrites risk — down from 101.1% to 94.6%. This means Direct Line was able to profitably write policies during the first half of 2013.

Direct Line’s commercial and international insurance activities also had a good start to the year, more than doubling operating profits to £21m.

Direct Line appears to be delivering on its strategic goals of reducing costs and writing better policies in order to improve profitability. But the insurance market remains highly competitive, which will likely strain the company’s ability to continue growing profits so impressively.

The shares have increased 23% since the company listed last October but investors need to ask themselves where the company goes from here.

If you aren’t convinced by the Direct Line story but are looking to invest in a growth opportunity, you should read this free report on The Motley Fool’s favourite growth share for 2013.

You can get the free report just by clicking here.

> Neither Nate nor The Motley Fool own shares of Direct Line Insurance Group.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »