Direct Line pleasantly surprised by Ogden impact in H1 results

Lower than expected increases in claims costs as a result of changes to the Ogden discount rate boosted the results of UK insurer Direct Line in the first half of 2017.

The news will be of interest to insurers and reinsurers, which have anticipated being hit by the change. The overall cost to insurers and reinsurers of the UK’s change in the personal injury Ogden discount rate is estimated at £3.5 billion across all lines of business, according to advisory firm EY.

Direct Line posted a net profit of £275.5 million in the first half of the year, an improvement on the £235.9 million it made in the same period a year earlier.

Its results were boosted by prior-year reserve releases in its motor business of £174.6 million in total, £49 million of which resulted from lower than expected increase to claims costs stemming from changes to the Ogden rate. The company said that bodily injury claims generally continued to trend more favourably than expected.

The insurer enjoyed strong growth, its gross written premiums increasing by 5 percent to £1.69 billion. GWP in its motor segment increased by 9.9 percent and in-force policies by 4.9 percent in the first half of 2017.

Paul Geddes, CEO of Direct Line Group, said: “The Group delivered another strong first half performance, as we continued to focus on giving customers what they want. In particular, we are pleased with the continued momentum in our Direct Line brand, which shows that customers value the great service and unique insurance propositions we are offering in both Personal Lines and Commercial Lines.

“Today the Board is rebasing the Group’s regular dividend upwards to reflect its confidence in the Group’s earnings and the progress the business has made since the IPO nearly 5 years ago when the Group’s dividend policy was previously set. We aim to grow the regular dividend in line with business growth, which we expect to be in the region of 2 percent to 3 percent per annum over the medium term.

“The investments we have made and continue to make in our business have delivered value for our customers and shareholders. As a result, we reiterate our 93 percent to 95 percent combined operating ratio target for 2017 and also extend this ambition over the medium term.”

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