Direct Line announces new cost-savings plan, declares 4p dividend

(Sharecast News) - Direct Line posted a widening of its full-year losses on Thursday as it announced a new £100m cost-savings plan and declared a 4p a share dividend. In the year to the end of December 2023, the operating loss from ongoing operations widened to £189.5m from £6.4m a year earlier, with "the adverse movement in the net insurance margin partially offset by an increase in investment income".

However, it swung to a pre-tax profit of £277.4m from a loss of £301.8m in 2022, boosted by proceeds from the sale of its brokered commercial business.

Gross written premium and associated fees rose by 27.1% during the year, with 46.2% growth in the second half.

Direct Line also said it was targeting at least £100m of annualised cost savings by the end of 2025, and a new net insurance margin, normalised for weather, of 13% in 2026.

New chief executive Adam Winslow said: "The group has not always managed volatile market conditions successfully in recent years, particularly in Motor. However, it is clear that the decisive actions that Jon Greenwood and the team have taken over the last year have created a strong platform for recovery, including significant pricing and underwriting actions to improve our Motor margins and the sale of our brokered commercial business.

"This has enabled the board to propose a dividend of 4 pence per share and for the group to have a strong post-dividend solvency capital ratio of 197% at year-end 2023."

However, Direct Line cautioned this should be not be seen as a resumption of regular dividends.

"While the board is confident in the actions taken in Motor, it recognises that the period over which to judge the sustainability of Motor's capital generation has been short and consequently this dividend should not be regarded as a resumption of regular dividends," it said.

"The board will update on any changes to its dividend policy, alongside the conditions it has previously set to consider restarting regular dividends, in July to coincide with its planned strategy update."

Direct Line announced last week that it had received and rejected a second takeover approach from Belgian rival Ageas as it continued to undervalue the group.

On 28 February, the London-listed insurer said it had rejected a £3.1bn offer from Ageas. This comprised 100p in cash and one new Ageas share for every 25.24 Direct Line shares, and implied a value of 233p per share.

The latest "highly conditional, non-binding indicative" proposal from Ageas, received on 9 March, was at 120p a share in cash and one new Ageas share for every 28.41 Direct Line shares. This has an implied value of 237p a share.

"The board considered the latest proposal with its advisers and continues to believe the latest proposal is uncertain, unattractive, and that it significantly undervalues Direct Line Group and its future prospects while also being highly opportunistic in nature," it said. "Accordingly, the board unanimously rejected the latest proposal."