It’s insurance companies reporting galore this week, kicking off with Direct Line on Tuesday, Legal & General on Wednesday and finishing off with Aviva and Admiral Group on Thursday.
Direct Lines results will provide the first insight into how much of a hit the insurance sector took in 2018 compared with the year of bumper profits in 2017. Higher weather-related claims for home insurance in the early part of the year, the changes in the Ogden rate for calculating compensation for personal injuries and Brexit provisions are likely to have taken some toll.
Direct Line trading updates point to a mixed year
Direct Line’s trading updates in the course of last year show that though its motor insurance premium income managed to rise in the early part of the year that trend was reversed later on as price comparison websites forced the company to cut premiums in order to stay competitive. The likely upshot will be a relatively small annual increase in growth of Direct Line’s motor insurance income.
During the better part of last year the company’s commercial insurance slipped slightly with the exception of business commercial insurance. Direct Line’s home insurance division registered a significant decline during the earlier quarters of the year as the insurer extracted itself from partnerships with Nationwide and Sainsbury’s and focused more on its co-operation with the Royal Bank of Scotland which has borne the first profits since 2012.
Changes at the helm
Going ahead the company may see a change in strategic direction later this year when long term CEO Phil Geddes steps down in May. Geddes, who navigated Direct Line’s split from the Royal Bank of Scotland Group and the company’s listing in 2012, is handing over the steering wheel to chief financial officer Penny James. James has joined the insurer from Prudential but has been with the company for only a year. She will have to navigate the firm through further changes in how the Ogden rate is applied and if Brexit goes ahead the potential fallout in terms of regulatory changes.
Direct line shares below peer group
Over the last 12 months Direct Line share performance has largely tracked the rest of the insurance sector but shares have underperformed peers like Legal & General. The lower Direct Line share price, however, could work in Direct Line’s favour, making it a better buy than some of the other contenders.