Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Direct Line’s chief executive announced new cost savings and profit targets, as the UK motor insurer swung back to profit and launched a fightback against a takeover attempt from Belgian rival Ageas.
Presenting his first set of full-year results on Thursday, just weeks after he joined the group, Adam Winslow said Direct Line had a “strong platform for recovery”, after a boost in profits allowed the group to restore a dividend of 4p per share.
Direct Line rebounded from a restated pre-tax loss of £302mn in 2022 to a £277mn pre-tax profit last year, boosted by a sale of its brokered commercial business, and shy of consensus estimates compiled by Bloomberg. A surge in insurance prices has repaired damage to its underwriting margins.
Winslow said the group had “identified immediate actions we can take in 2024 to create value” including a substantial reduction to the cost base and improving how it manages claims. He also promised a “comprehensive strategy review” to be unveiled in July. The group has targeted £100mn in annual cost savings by the end of next year, and a tougher underwriting profit target to be achieved by 2026.
Direct Line, which provides motor and home cover as well as other policies, struggled to deal with post-Covid inflation, leading to a string of profit warnings, the departure of its chief executive and the suspension of its dividend.
Its interim boss said last year that it had been guilty of “over-optimism” in not pushing through enough price rises. It has since raised premiums sharply, in step with peers.
Ageas has had two preliminary cash-and-share offers rejected by Direct Line’s board, the second of which valued the group at 237p per share. The target’s board said the offer, which implied a £3.2bn valuation, was “uncertain, unattractive, and significantly undervalues” the UK insurer, in a statement earlier this month.
Analysts at Jefferies have previously estimated that an offer in the 270p to 300p per share range would have “a higher likelihood of being accepted . . . and would be more in line with recent M&A valuations in the sector”. Under takeover rules, Ageas has until March 27 to announce whether it has a firm intention to make an offer.
